Tata Consultancy Services, Cognizant, InfosysNSE -0.99 % and Wipro have about $2 billion in tax disputes pending in India, largely over differences in calculating incentives for export-oriented units and distribution of dividend taxes to investors.
TCS, Infosys and Wipro are fighting cases related to tax incentives that they have claimed under the Software Technology Parks of India (STPI) and Special Economic Zone (SEZ) schemes. Cognizant is in a dispute over how the dividend distribution tax over profits repatriated to its parent company is calculated.
Tata Consultancy Services, India’s largest IT services company, has over Rs 5,600 crore in disputes pending with tax authorities, a figure that has nearly doubled since the previous financial year, the company disclosed in its latest annual report. In FY17, TCSNSE -0.72 % reported Rs 2,690 crore in contingent liability related to tax disputes. “Many of these disputes are because of issues with interpretation by different tax officials,” said Sangeeta Gupta, senior vice president at IT industry body Nasscom, adding that several of these cases eventually land up in courts and drag on for years.
Wipro’s earliest tax dispute is for FY1985-1986 — over 30 years ago. The company faces over Rs 1,900 crore in tax disputes, its annual report showed.
“Tax litigation in India is a prolonged process. Over the years, the industry has repeatedly sought speedy resolution of outstanding tax disputes,” a Wipro spokesperson said in response to ET’s queries. “The Economic Survey 2018 noted that both the government and the courts should come together and find a solution to address the large pendency of cases.”
TCS declined to comment on the reason for the jump in its tax liabilities, citing its silent period ahead of its first-quarter earnings announcement next week. Infosys, which has over Rs 3,500 crore in tax disputes, did not respond to a request seeking comment.
An IT industry executive, requesting anonymity, said companies lose heavily even if they take a dispute to court. “If a company wants to contest a tax notice, it will still have to deposit a part of the money claimed by the tax department before a court takes up the case,” he said.
In a recent case involving Cognizant, the Madras High Court granted an interim stay on the Income Tax department’s proceedings, subject to the company depositing 15% of the Rs 2,800 crore dividend distribution tax demanded by the department. Aformer CEO of a Bengaluru-based IT services company said such cases remain indecisive for years, and decisions have been in favour of companies on many occasions.
“Companies take one stand and tax authorities take another stand. Then the tax authorities want it to be sent for appeal because no party decides. It goes on,” this person said, declining to be identified. These tax disputes are in stark contrast to the situation in other countries that are rolling out the red carpet to Indian IT companies to set up shop.
Indiana offered Infosys as much as $31 million in incentives when the company up shop in the US state. The incentives were mostly in tax abatements and one-time grants. Cognizant, too, received benefits when it expanded its headcount in Tampa, Florida.
“In India , such tax litigations have taken time. While it is hard to determine specific reasons, given the sheer size of the dispute, no parties are willing to let it go,” said Amit Maheshwari, partner at tax consulting firm Ashok Maheshwary & Associates LLP.
Source: economictimes.indiatimes.com