Indian authorities may issue notices soon to more major IT services firms in an investigation of alleged tax evasion related to work done by their overseas offices, a government source said yesterday, a day after Infosys was slapped with a $4 billion tax demand.
In serving its highest-ever tax demand on Infosys, the government accused India’s second-largest tech services company of evading taxes and sought 320bn rupees ($3.8bn), or almost all its revenue for the quarter ended June 30.
The National Association of Software and Service Companies (Nasscom), an industry lobby group, said that the tax demand “reflects a lack of understanding of industry’s operating model”, and that companies are facing avoidable litigation, uncertainty, as well as concerns from investors and customers due to such actions from the government.
“The government circulars issued... must be honoured in enforcement mechanisms so that notices do not create uncertainty and negatively impact perceptions on India’s ease of doing business,” it said.
Yet, tax authorities are not confining their investigations to Infosys. “This is an industry-wide issue,” a senior tax official with knowledge of the matter told Reuters, adding that notices were likely to be sent to some other IT companies.
Infosys said late on Wednesday it had received “pre-show cause” notices from the tax authorities but believed the relevant taxes had been paid. The company said in a statement it had paid its dues and is in compliance with central and state regulations.
The source spoke on condition of anonymity as he was not authorised to speak to media.
India’s finance ministry did not reply to an email seeking comment.
Experts said more tax notices for the same alleged violations were likely to be in the offing.
“Issuing such a substantial show-cause notice is likely to set a precedent, leading to similar notices being issued to other multinational companies, particularly in the IT sector,” said Rajat Mohan, director at accounting firm MOORE Singhi.
The overseas offices carry out projects for Indian IT firms and provide services to international clients, among other functions.
Shares of Infosys were down 1 per cent at 1,868.25 rupees yesterday.
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