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Tax Demand On Infosys Surprises Industry

by Mary Swire, Tax-News.com, Hong Kong

24 January 2011


Bangalore-based Infosys Technologies Ltd, India’s second largest software firm, has said that it will appeal against a demand from the Indian Tax Office for INR4.57bn (USD100m) for work done overseas. The demand is based on the 2007-08 financial year.

The tax office says that the software exporter is not eligible to claim tax benefits for income generated by employees working at clients’ sites overseas. It says that such services are not recognized as exports, therefore revenues from such work cannot be allowed tax allowances meant for exports. The industry believes, however, that any work done on-site cannot be separated from work done offshore.

This type of work accounts for more than 40% of the total earnings of software companies based in India. The tax demand has shocked the industry, which is now worried that other companies could face similar tax bills. The matter has been rumbling for some time, and it was thought that it had been settled.

V Balakrishnan, Chief Financial Officer of Infosys, has said that it is an arbitrary order, and that the company had made detailed representation to the tax department.

TAGS: compliance | tax | tax compliance | India | commerce | law | employees | offshore | internet | e-commerce | contractors | professionals

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