Google India loses €192m tax regime case over Adword sales from Ireland

Google has lost a €192 million tax case in India, where a tribunal has found that its local and Irish units collaborated in a "clear and conspicuous" attempt to help the Indian operation "skip its liabilities" on business taxes.

The case, which centred around Google’s decision to send to Ireland revenues earned in India from its Adwords advertising service, has sparked concern among several major multinationals with offshore intellectual property in this country.

A delegation of lawyers acting on behalf of the Indian branches of major web companies, said to include Amazon, Apple and Microsoft, is reported to be preparing to meet Indian finance ministry officials this week to express concern about the implications of the ruling against Google over its use of Ireland for tax purposes.

Google India had argued that under a 2005 agreement it has with Google Ireland, it was simply a reseller in India of Adwords services , the intellectual property for which is held in Dublin.

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Remitting revenues

It argued that the real work was done by Google Ireland, and it was simply remitting revenues back to the company that had generated them.

However, a tax tribunal in Bangalore, which examined payments to Google Ireland over a six-year period, held that the payments should have attracted taxes in India.

The tribunal’s decision has been released in a lengthy and complex 134-page judgment, which examines the interaction between Google Ireland and Google India from 2006 until 2012.

“It is clear and conspicuous that Google India and Google Ireland wanted to avoid payment of taxes in India,” the tribunal wrote. “This is a clear design to skip the liabilities by both [Google India] as well as Google Ireland.”

It rejected Google India’s argument that it is simply a reseller of the Irish unit’s Adwords efforts, and observed that the local unit had access to data on Google users’ age, gender, locations, type of phone etc.

The tribunal found that because the intellectual property for Adwords is held in Dublin, the remittances to Ireland were actually royalty payments that should have attracted withholding taxes in India.

Dublin

Indian tax authorities had first raised concerns over the payments in 2011, and wrote to the web company asking for an explanation. Google India argued that it only marketed and distributed Adwords space in India, and said all the back office work was done in Dublin.

Google India approached the Reserve Bank of India in 2011, asking for permission to remit a large sum to Dublin to cover activities from 2006 until the 2011/12 tax year. It got permission to make the payment in 2014.

In the meantime, however, tax authorities issued it with a demand for taxes on more than 14.5 billion rupees (€192 million). Google appealed this to the tribunal, which upheld the demand.

Lawyers and accountants in India are reported to have concerns that the tribunal’s decision has implications for all web companies with offshore intellectual property, if remittances are to be treated as royalties.

Riaz Thingna, a partner with Grant Thornton in India, said it was “a harsh judgment and would have a far-reaching impact on business arrangements”.

Google Ireland did not comment on the ruling. Google India says it will appeal in court the tribunal’s finding, which it says breaches a double-taxation agreement between Ireland and India.