Thursday, September 1, 2011

MNCs Finding it Hard to Avoid Taxmans GlareThe leading trio of foreign IT firms

 
MNCs Finding it Hard to Avoid Taxmans GlareThe leading trio of foreign IT firms with a presence in India IBM, Accenture and Capgemini have 30% of their global workforce in the country, but record just 5% of their revenues from here. In 2009-10, the Indian subsidiary of France-registered Capgemini recorded a profit per employee of.Rs.1. 5 lakh about a third of TCS, the largest homegrown IT firm. Gaps like these which arise because of the discretion available to the foreign parent to price its transactions with its subsidiary, leading to under-reporting of revenues in India and thus tax avoidance are being examined with greater vigour by the Income-Tax Department. In 2010-11, the department forced the Indian arms of foreign companies to increase their revenues by.Rs.22, 800 crore. This amounts to a 130% year-on-year increase in transfer pricing adjustments, and almost equals the sum of all such adjustments since 2000-01, when India introduced transfer pricing rules. The spike reflects government posturing on transfer pricing, an active tax-avoidance channel for foreign companies. At a tax seminar nine days before Budget 2010, Finance Minister Pranab Mukherjee had said: The tendency to shift profit from India would be prominent as it is among the few countries exhibiting higher growth, leading to a greater opportunity for profitability than other countries. He added the department was going to crack down on such practices. Transfer pricing provisions are triggered when, say, IBM India provides services to its parent in the US. The basic premise of rules governing such transactions is that the price at which IBM India provides the service to its parent should be similar to what it would have charged an unrelated party. When companies undervalue related-party transactions, it is called mis-pricing. According to the department,Rs.22, 800 crore was the quantum of mis-pricing reported by multinationals in 2010-11. IT multinationals are reported to be the worst offenders. There is no firm estimate, says Rohan Phatarphekar, head of transfer pricing at KPMG. But IT and ITES (IT-enabled services) companies accounted for between one-third and half of these adjustments last year. - www.economictimes.indiatimes.com

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