Tax tussles between Indian and foreign companies

In India, foreign companies often face difficulties due to the high tax demands on large M&A deals or accusations by the government of duty evasion. This can lead to lengthy litigation.

The following are the most important tax disputes that have occurred in the past and present involving foreign companies.

SAMSUNG

In January, the South Korean giant Samsung Electronics was ordered to pay back taxes and penalties of $601 million for avoiding tariffs on imports of key telecom equipment.

Samsung is one of India's largest consumer electronics and smartphone companies. The amount demanded represents a significant chunk of its net profit last year of $955 millions. Samsung has said it will explore legal options.

VOLKSWAGEN

Volkswagen has received a tax notice of $1.4 billion for importing 14 models including some Audis in separate shipments, to avoid paying the higher tax for completely knocked-down (CKD), units.

The German automaker filed a lawsuit against Indian authorities at a Mumbai court, claiming that the "impossibly large" tax demand would affect its investment in India and the sentiment of foreign investors.

Documents from the court show that India's government informed the court of the "catastrophic" consequences if it agreed to Volkswagen's request to annul the tax bill and encouraged companies to withhold and delay inquiries.

Kia, a South Korean company, has been accused in a similar way to Volkswagen of avoiding $155 million worth of taxes by misclassifying certain car component imports. The company, however, is disputing this charge privately with government officials.

Kia's incorrect import declaration of components used in the assembly of its luxury Carnival minivan is at the core of the dispute.

VODAFONE

In one of most controversial cases, Vodafone received a tax demand of $2 billion when it bought the Indian assets from HutchisonWhampoa for $11 billion in 2007.

In the dispute, there were years of litigation. The Indian top court ruled in favour of the company. This was followed by a law change that reimposed demand and international arbitration between both sides. Vodafone won the arbitration in 2020.

CAIRN ENERGY

Cairn Energy, a British company, was hit with a tax bill of more than $1.4billion in 2007 for the transfer shares that occurred during an internal restructuring.

Cairn sold its majority share of Cairn India in 2011 to Vedanta Ltd. This reduced its stake in the Indian firm to around 10%.

In 2021, the Indian government and Cairn india finally settled their years-long dispute by offering to refund tax amounts.

PERNOD RICHARD

Indian authorities have accused the French liquor giant Pernod Ricard of undervaluing some imports over a period of more than 10 years to avoid paying full duties.

India has demanded roughly $250 million of back taxes, but Absolut and Chivas Regal have disputed the findings.

Pernod warned the Narendra Modi administration in 2022 that its tax disputes with authorities over the valuation of liquor imports had hampered new investment and its existing business.

Indian authorities have accused BYD, a Chinese automaker, of not paying $8.37m for parts used in cars that it assembles and then sells in India.

BYD deposited the money later, but the investigation is ongoing and could result in additional tax charges and penalty, as has been reported previously. (Reporting and editing by Aditya K. Kalra, Kim Coghill and Nandan Mandayam)

(source: Reuters)