MNCs not behind desi cos in evading taxes

NEW DELHI: MNCs are not far behind their desi counterparts in terms of tax evasion. Sensing rampant tax evasion by MNCs, the government plans to launch an intensive probe.

There are reports of non-compliance in terms of paying fringe benefit tax (FBT) by foreign firms. Besides that, the I-T Department has to recover several thousand crores from them as direct tax claims, sources in the government said.

“A proper investigation in this direction will be initiated only in November when companies file their returns. The last date of filing returns is October 31, ‘06,” an official said. The I-T department raised direct tax demands of over Rs 7,640 crore in ‘05-06, but could collect only Rs 670 from these companies.

It is found that cases of direct tax evasion by MNCs are on the rise. Preliminary reports also suggests that there could be irregularities by foreign companies in paying FBT, sources said.

Even on the indirect tax front, a similar exercise is being contemplated. Officials said that honest tax-payers (MNCs) will not be harassed in the process.

Officials said that while some cases of tax irregularities are unintentional, some companies deliberately indulge in tax evasion. In the era of e-commerce transactions, establishing identity of persons is difficult, some MNCs, taking advantage of e-commerce try to evade taxes.

MNCs also take advantage of globalisation to misuse certain tax concessions like routing their investment in India through conduit companies located in jurisdictions where there is lower tax, with whom India may have a Double Taxation Avoidance Agreement (DTAA).

The government has made several policies to check tax evasion by foreign entities. The transfer pricing regulation has special provision for computation of income from international transactions. Besides, all cases involving international transactions of Rs 5 crore or more are compulsorily scrutinised.

As India had entered into various DTAAs with several countries and some of them did not have provisions to effectively deal with situations of conduit companies, problems of collection of tax dues from non-residents and exchange of information, a model draft for DTAAs was prepared in ‘04. Fresh DTAAs are being entered into with various countries, sources in the finance ministry said.