Indian authorities have hit leading IT outsourcer Infosys with a US$3.9 billion tax demand – and some news reports suggest the pursuit of alleged unpaid taxes will soon target other big names.
According to the UK’s Financial Times the demand came as the Indian IT industry was showing early signs of recovery following a worldwide tech spending slowdown. Indeed, Infosys and other relevant players, like Tata Consultancy Services, posted buoyant quarterly earnings earlier in July.
Infosys has apparently been issued notices for payment of goods and services tax (GST) by agencies in its home state of Karnataka and from the national Directorate General of GST Intelligence for the period of July 2017 to March 2022.
The tax demand relates to “expenses incurred by overseas branch offices”, says Infosys, whose headquarters, like those of a number of IT companies, are in the Karnataka capital Bengaluru. It does not agree that GST applies on these expenses.
Reuters, however, suggests Indian authorities may soon issue notices to more major IT services firms in an investigation of alleged tax evasion related to work done by their overseas offices. Reuters says these overseas offices carry out projects for Indian IT firms and provide services to international clients, among other functions.
This isn't just about IT, however. In the last year, India’s GST department has sent more than 1,000 notices to companies, including Life Insurance Corporation of India, Dr Reddy’s Laboratories and Ultratech Cement.
Tax authorities have also issued notices to online gaming companies demanding a total of about 1 trillion rupees (about US$12 billion) in taxes that they have allegedly evaded. Many companies have challenged these demands in tribunals and courts.
This isn’t the first backdated tax claim from Indian officials, as Vodafone, a company that has successfully fought retrospective taxes, might point out.
As we reported at the end of the 14-year dispute, the Indian government decided to nullify its own tax demands against Vodafone, apparently to improve perceptions of its stance on taxation in order to encourage foreign investment into the market. But could the recent drive to pursue alleged unpaid taxes undermine this effort?
