Income Tax officials in India conducted raids at offices and premises of senior members of Chinese multinational company, Huawei. As reported by Indian Tax officials in a statement, searches were conducted on February 15 at the main business and residential premises of ”key office bearers” of a multi-national group, engaged in distribution of telecom products and providing captive software development services.
There are allegations against the Chinese company, Huawei, for suppressing its income to the tune of Rs 400 crore to reduce its income tax and transferring the money abroad to its other related companies by manipulating its books. According to a senior officer of the Finance ministry in India, preliminary investigations revealed that the Huawei group had made inflated payments against receipt of technical services from its related parties outside India.
The Finance Ministry of India said, “The assessee company could not justify the genuineness of obtaining of such alleged technical services in lieu of which payment has been made as also the basis of determination of consideration for the same.”
As per reports, the expenses debited by the assessee company towards receipt of such services are to the tune of Rs. 129 crores over a period of five years. Investigations further revealed that the accused company had also debited more than Rs.350 crore in its books of account in recent financial years towards royalty to its related party.
The Ministry further said, “Such expenses have been incurred for the use of brand and technical know-how related intangibles. During the search, the group has failed to substantiate receipt of any such services/technical know-how, or the basis of quantification of royalty rate for such claim. Consequently, the rendering of services and such royalty payments become highly questionable and prima facie, disallowable as business expenses as per extant Income Tax law.”
During the raid conducted on 15 February, documents suggested that one of the group entities engaged in providing software development services, had been disclosing lower net margins from the related parties, by claiming its operation to be of low-end nature, whereas evidence disclosed that the entity had been rendering significant services, operations of high-end nature and suppressing income of Rs 400 crore.
