Google’s motto might be “don’t be evil”, but that doesn’t appear to have stopped it from evading taxes in India.
A Bengaluru bench of the Income-Tax Appellate Tribunal has said that Google didn’t pay taxes on income it earned in the country. Back in 2007, the Income Tax department in Bengaluru had discovered that for years, Google India had been routinely sending a chunk of the advertisement revenue generated from India to Google Ireland. As no tax was deducted by Google India while remitting funds to Google Ireland, it was a clear case of tax evasion, the body had said.
Google had contested the claim in six appeals between 2007 and 2012. All the appeals were dismissed yesterday by the Income-Tax Appellate Tribunal (ITAT) which 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 (Google Ireland), no tax was deducted nor any permission was sought for paying the amount.”
At the center of the issue is the money Google earns through its AdWords program, through which it is paid by advertisers to show ads on its online products. Google India sells ads to Indian advertisers, but uses technology and servers that are located abroad. Google India had argued that Google Ireland had not transferred the intellectual property rights to the Indian arm, and it was only a distributor of advertising space and had no access or control over the infrastructure or the process involved in running the Adwords programme. But according to the tax tribunal, since Google India has used the information and patented technology from Google Ireland, the remittance to the foreign entity is royalty which, under law, is to be taxed in the contracting state (India).
“…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.,” said the Bengaluru bench of ITAT.
Ireland is a popular tax haven for multinational tech firms, and firms like Google, Apple, and Facebook all operate offices there. The United States has a corporate tax rate of 35%, but Ireland’s taxation rate for corporations is just 12.5%. In addition, Ireland only charges a corporate tax rate of 6.25% for revenue tied to a company’s patent or intellectual property. Earning revenue in Ireland, as opposed to other countries, can help tech firms make significant savings on their tax liabilities.
Google, for its part, now must pay taxes on the Rs. 1457 crore it had sent to Ireland over the last six years. In recent times, Google is increasingly coming under government scrutiny over its policies. In June this year, Google was fined a record 2.4 billion euros (Rs. 17,550 crore) for manipulating its search results to promote its own shopping service, and its technique of routing non-US revenue through Ireland has also come under criticism.