The Income Tax (I-T) department has for the first time cracked down on multinational companies for violations of transfer pricing. The department has also raised fresh tax demands on a host of companies in sectors like telecom, e-commerce and hospitality, some of which pertain to misuse of the Double Tax Avoidance Treaties (DTAA).
Telecom emerged as the biggest area of tax demands with total claims in the range of Rs 1,114 crore. On transfer pricing the demand raised is over 4.5 crore. In case of other liaison companies were asked to pay Rs 125.77 crore, satellite companies Rs 291.5 crore, foreign solicitor firms about Rs 52.5 crore and e-commerce companies Rs 3.82 crore.
The transfer pricing issue came up in case of medical equipment company Picker India Ltd, British Telecom's India branch and Bentley Venture One LLC. In the case of Picker India Ltd, a subsidiary of Picker International, it was established that the commission received by the Indian company was not on the basis of armslength principle. Also, the gross profit on the goods purchased from the parent was approximately 50 per cent less than the gross profit on goods purchased from third parties.
In the case of BT Worldwide it was found that the assessee was not showing any income from BT Plc from services rendered in India. BT Worldwide revised the return and paid about Rs one crore as tax based on the basis of cost plus formula. It was later found that the principle was not based on an armslength principle. Bentley Venture One LLC's case was also found to be of a similar nature.