I-T department probes Apple, Google, and Amazon over tax payments and transfer pricing practices

The Income Tax (I-T) Department is conducting an investigation into the Indian branches of Apple, Google, and Amazon for potential non-payment of taxes. As part of an inquiry initiated in 2021, the authorities have requested comprehensive explanations from these tech giants regarding their transfer pricing (TP) practices, as informed by individuals familiar with the situation.

According to a report of Economic Times, The department is eyeing a tax demand of over Rs 5,000 crore and has rejected many of the justifications provided by these companies, the people said. The Indian arms involved in the matter are Apple India Pvt Ltd, Amazon Seller Services India Pvt Ltd and Google India Digital Services Pvt Ltd.

At the crux of the issue is the methodology employed in transfer pricing (TP) adjustments, leading to potential tax liabilities as perceived by the department. This matter spans across multiple assessment years and is presently undergoing examination and legal proceedings at various forums. Both Amazon and Apple have enlisted the services of PwC to advocate on their behalf. Despite emails sent to Apple India, Google India, and Amazon India, no responses were received by the time of press.

Transfer pricing (TP) involves the accounting method for determining prices in transactions between related parties, such as corporations and their units in different countries. The department is reportedly investigating the three tech giants regarding transactions related to various aspects, including advertisement, marketing, promotion expenses, royalty payments, trading, software development segments, and marketing support services.

Regarding Apple, the tax investigation primarily centers around the Indian arm's procurement of finished products from its original equipment manufacturers and their subsequent sale in the domestic market.

While the company has contested that this isn't an international transaction (and is) hence outside the purview of taxation, the department contended this to be a deemed international transaction, said a person privy to the matter. The department found that the taxpayer wasn’t paying any royalty on trading. The royalty amount has been benched to nil as the assessee couldn’t prove exploitation of the IP (intellectual property), Economic Times reported.

Also, in the case of Apple India, on the expenses related to trading segments, the (Income Tax) Department has rejected the justification given by the company. This has caused an alleged tax liability running into hundreds of crores, said another tax official.

According to another source familiar with the matter, in the case of Google India, specific transactions required under form 3 CEB were not reported. The revenue department considers these as international taxation, leading to a raised tax liability on the company.