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IBM Challenges Indian Tax Demand

by Mary Swire,, Hong Kong

12 February 2014

Software firm IBM has challenged its Indian tax bill in the latest row to erupt over the authority's increasingly hard line stance on multinationals.

IBM confirmed to India's Financial Express newspaper that it had appealed to the Karnataka High Court against the Income Tax Department's demand of INR53.57bn (USD863.41m). The company contends that the draft assessment issued by the Department last October "ignores fundamental accounting and tax principles."

The taxman, on the other hand, alleges that IBM failed to maintain separate accounts for the export income it earned via establishments in the Software Technology Park of India (STPI) and Special Economic Zones (SZEs) in 2008-09. Although the Income Tax Appellate Tribunal stayed this demand, the Karnataka High Court ruled in the Department's favor, instructing it to collect taxes worth INR10.9bn.

In a separate development, the Appellate Tribunal has asked IBM India to prove that INR60bn of its 2007-08 revenue came from software exports. The Economic Times claims to have seen a copy of the order in question, which instructs the Income Tax Department's dispute resolution panel to re-examine the case against IBM. The Department, for its part, will be "at liberty to examine as to whether the convertible foreign exchange brought into India represents consideration received for export of computer software."

TAGS: compliance | tax | tax compliance | India | tax avoidance | tax incentives | revenue guidance | accounting | ministry of finance | tax authority | multinationals | tax planning | transfer pricing | tax rates | tax breaks | revenue statistics | tax reform | Tax | Tax Evasion

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