Income Tax Dept. Rejects Google’s Argument; Will Google India Pay Tax On Rs 1457 Crore?
Google is known to save taxes of host countries by creating a series of shell companies in tax havens.
It is an open secret that Google smartly saves taxes in every major country, including USA and India, by creating a series of shell companies in tax-havens such as Ireland, Bahamas, Netherlands, Bermuda etc. Google India is no different.
Last year, it was widely reported that Google saved around $3.6 billion in 2015, by using the famous “Double Irish” tax reduction strategy.
However, it seems that Google’s strategy to save taxes won’t work in India, as the Income-Tax Appellate Tribunal (ITAT) has dismissed Google’s arguments in a tax related case. And this ruling means that Google India may be soon ordered to pay taxes on Rs 1457 crore, which they evaded between 2007-08 and 2012-13.
Google has an option to appeal further higher up, but it is unlikely that they will win here.
Income Tax Dept To Google India: Please Pay Tax!
The case is concerning Google’s Adwords program, wherein advertisers pay money to Google for showing their advertisements on Google search and Google’s partner websites.
Bengaluru’s Income Tax dept. Observed that between 2007-08 and 2012-13, Google India remitted around Rs 1457 crore to Ireland, and there was no tax paid on this amount.
Income tax Dept. concluded that since Google hasn’t paid TDS (Tax Deducted at Source), this is clear cut case of tax evasion by Google India.
Since 2009, Google has been fighting this case against Bengaluru’s Income Tax Dept.
Google Loses The Tax Case
On Tuesday, Income-Tax Appellate Tribunal (ITAT) dismissed all arguments put forth by Google, and rejected their appeal.
In their ruling, ITAT said,
“…the intention of the assessee (Google India) as well as of the GIL (Google Ireland) is clear and conspicuous that they wanted to avoid the payment of taxes in India. That is why, despite the duty of the assessee to deduct the tax at the time of payment to GIL, no tax was deducted nor any permission was sought for paying the amount (sic).”
Due to this ruling, Google India will be now forced to pay tax on Rs 1457 crore, which they remitted back to Ireland between 2007-08 and 2012-13.
Logic of Google Which Was Rejected
As per the appeal and logic put forth by Google India, they are using the services and patented technology of Google Ireland, and for that, they need to pay the fees to them.
Hence, Google India is only a ‘distributor’ of Google Ireland’s services and the remittances is the ‘royalty’ for using intellectual property rights of Google Ireland.
Quashing these arguments, ITAT ruled:
“…the argument of the assessee (Google India) that it was only using customer data, IPR etc, for rendering the services relating to ITeS (Information Technology-enabled Services) is incorrect…in our view amount was being paid by the assessee to Google Ireland for the use of patent invention, model, design, secret formula, process, etc. Further, the payer is required to maintain books of account and deduct TDS (tax deducted at source) for both resident as well as non-resident. No separate treatment had been envisaged under the Act, for the payer paying to a non-resident..”
When Google used the India-Ireland Double Taxation Avoidance Agreement (DTAA) and asked for tax-relief, ITAT said,
“If we go by literal meaning of double taxation avoidance agreement, then unscrupulous persons may misuse the provision and avoid payment of taxes,”
If Google India is forced to pay the income tax on the amount remitted to Google Ireland, then it can set a major precedent in India, and it can directly affect every global IT services provider in the country.
We will keep you updated as receive more news on this development.