IBM in Rs5,357-cr tax dispute in India

IBM India is in a dispute with the country's tax authorities over an alleged tax liability of Rs5,357 crore, after the authorities served a tax notice on the Indian unit of IBM for under-reporting revenue for the 2008-09 financial year.

The tax department is alleging that the US company under-reported export revenues earned from its facilities located in tax-exempt IT parks in the 2008-09 financial year.

An IBM India spokeswoman said the company has taken the tax dispute for ''judicial recourse."

"IBM does not agree with the tax department`s claims and will aggressively defend itself through the appropriate judicial process," the spokeswoman said.

"Fundamental to IBM's culture and business model is that we act with integrity wherever we do business," she added.

The government allows tax exemption on the profits earned from export of software and related services by information technology services companies located in Software Technology Parks of India.

However, due to a lack of clear definitions on the rules, disputes often arise between industry and the tax department resulting in the IT companies losing tax exemptions.

IBM is one of the several IT companies that have received tax notices in the recent past. Other large Indian IT services companies such as Infosys, Wipro and WNS have also disputed such tax demand.

Second-ranked Infosys, third largest software company Wipro, iGate and WNS have all appealed similar tax demands running into thousands of crores, for the past several years.

IBM has been locked in a tax dispute with authorities related to its fiscal 2009 income and the company, in its latest 10-Q filed with the US Securities and Exchange Commission (SEC), said it had prepaid $394 million in income tax in India by 30 September 2013.

IBM said a "significant portion" of that amount was paid in order to reserve its right to appeal previous tax assessments in the country.

The draft assessment order served on IBM by the tax authorities is one of the several tax claims against a host of companies. The tax claims can, however, be challenged before the appellate authorities.

Tax authorities in India are pursuing disputed tax claims against several multinationals, including Royal Dutch Shell, Vodafone Plc and Nokia among several firms.