Apple India, Amazon Seller Services, and Google India Digital Services find themselves at the centre of a probing lens as India’s Income Tax Department investigates potential discrepancies in transfer pricing that could result in tax demands exceeding Rs 5,000 crore.
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Initiated in 2021, the ongoing investigation delves into the intricacies of inter-company transactions and their compliance with arm’s length principles—a method ensuring transactions between connected companies are conducted as they would be between unrelated parties, Economic Times reported.
The scrutiny encompasses various assessment years and is currently entangled in different stages of litigation. PricewaterhouseCoopers (PwC) stands as the representative for both Apple and Amazon in these matters, while responses from the companies regarding the probe have been notably absent.
The crux of the investigations lies in the valuation of transactions pertaining to advertisements, royalties, trading, software development, and marketing support services. The companies are currently contesting the tax department’s stance that characterizes these transactions as international—a classification that carries significant tax implications, Economic Times reported.
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Specifically, Apple’s investigation zeroes in on the purchase and sale of finished products by its Indian arm, with contentions arising over the classification of these transactions. Despite significant revenue and net profit growth, fueled by an increase in local iPhone manufacturing, Apple India faces a challenging disagreement with the authorities.
Amazon’s dispute is anchored in the classification of delivery charges, which the tax department views as marketing expenses—a reclassification resulting in a higher tax liability. Similarly, Google India is embroiled in a contention over transactions that have not been reported as international but are viewed as such by the tax department.
These investigations are not isolated events but part of a broader trend of tax authorities worldwide becoming increasingly vigilant about transfer pricing practices to ensure fair taxation. Industry insiders, however, consider such probes routine, often culminating in appeals and resolutions outside the public eye.
As the inquiries advance, the implications for the tech giants extend beyond financial repercussions; they underscore the complexities of operating in a global digital economy where tax rules are still catching up to business innovations. The outcomes of these investigations will be closely watched by industry observers and could potentially set precedents for transfer pricing practices in India and beyond.
