New Delhi: Samsung Electronics India Pvt. Ltd, the local arm of multinational consumer electronics firm Samsung Electronics Co. Ltd, is the latest firm to come under the scanner of the income-tax department. The show-cause notice issued on Saturday claims that the firm did not pay taxes on Rs.1,139.21 crore of income for the assessment year 2006-07.
The notice, which has been reviewed by Mint, alleges non-deduction of TDS (tax deducted at source) by Samsung India on payments to its parent company, South Korea-based Samsung Electronics, and associated enterprises.
In an emailed response, a Samsung spokesperson said: “We have not received any official notice from the Indian government. We have always respected and cooperated with the Indian authorities while faithfully adhering to all laws and regulations of the country.”
To be sure, it is possible that the notice dated 30 March, which is generally sent by post, may still not have reached the company as of press time.
The action against Samsung comes after a series of recent tax claims against multinationals companies by the Indian tax authorities.
Finnish mobile phone maker Nokia Oyj’s Indian unit received a Rs.2,000 crore tax claim in March for the non deduction of TDS paid as royalty to its parent. The company said last week that it has secured a temporary stay from the Delhi high court on the order, which it intends to contest “vigorously”.
Shell India Markets Pvt. Ltd, the local unit of Royal Dutch Shell Plc, has also been at loggerheads with the tax authorities after they accused it of under-pricing an intra-group share transfer by Rs.15,220 crore.
The case against Samsung dates back to 2010 when a survey conducted by the international taxation division of Samsung India and Samsung Korea showed that the local unit is a “permanent establishment” of the foreign company along with being its wholly owned subsidiary in India, said a government official familiar with the matter.
“In that case, Samsung India was supposed to deduct TDS on payments made to Samsung Korea and sister concerns,” said the same official, who did not want to be identified due to the sensitivity of matter.
A permanent establishment is defined as a fixed place of business through which the business of an enterprise is wholly or partly carried on like a branch, factory or an office.
As per the India-South Korea double taxation avoidance agreement (DTAA), in case it is proved that the foreign company has a permanent establishment in India, the profits of the enterprise may be taxed in India to the extent attributable to that permanent establishment.
The company has been asked to respond to the notice by the tax department by 14 April and explain why it should not be treated as an “assessee in default”. The tax department contended that the business income of the associated entities that are attributable to Samsung India will be taxable in India as per DTAA.
“It is observed from the assessment record that M/s Samsung India Electronics Pvt. Ltd has made huge payments to its parent company M/s Samsung Electronics Corporation without deducting tax u/s 195 of the Act which are to be disallowed and added back to the taxable income of the assessee company,” said the notice.
Sunil Jain, tax partner at J Sagar Associates, pointed out that such high-pitched assessments by the income-tax department under pressure of recovery are avoidable.
Many companies have been at the receiving end of these aggressive tax demands by the department, which had only met 77% of its revised targets till February.
This is despite the fact that the government has lowered its revised tax revenue estimates by nearly Rs.30,000 crore in the wake of slowing economic growth.