The Income Tax Appellate Tribunal (ITAT) upheld its ruling that Google India must pay taxes on the advertisement revenue sent to its parent company Google Ireland Ltd. The ruling was made in a 331-page order by the Bangalore Bench of the ITAT, which stated that the payments made to a foreign entity is royalty and it must be taxed according to the local law. Google said that it will challenge the ruling in High Court.
Google is now looking at a tax demand on Rs.1,457 crore remitted to Google Ireland Ltd during the assessment years 2007-08 and 2012-13. While remitting this payment to the parent company, Google India did not deduct any tax at the source. By upholding the verdict, the tribunal has issued a tax demand of Rs.258.84 crore for the Rs.1,114.91 crore remitted to Google Ireland in 2012-13.
The issue on taxation between Google and the Income Tax department is for the advertisement revenues generated for running the Adwords programme to advertisers in the country. After a six-year battle between Google and the IT department, the tribunal ruled in October 2017 that the chunk of revenues transferred to Google Ireland is a clear case of tax evasion.
In its contention, Google said that there is no intellectual property transfer from Google Ireland. It stated that Google India has only acted as a distributor of the infrastructure for running the Adwords programme. The tribunal, however, noted that there is a transfer of patented technology from the parent company Google Ireland and this could be constituted as royalty. Based on this, the remitted amount is liable for taxation.
Commenting on the ruling, a Google spokesperson stated that the company complies with all tax laws in India. The spokesperson noted that Google would contest this ruling since this is a clear departure from India’s double taxation avoidance agreement.
Ireland is a place renowned for its lax rules on taxation. Some of the major US companies including Apple and Google have used Ireland’s tax rules to protect their non-US income. Despite the closure of the controversial double Irish tax structure, Ireland continues to be a major destination for tax avoidance since corporate tax is extremely low in the country.