The 18 month prolonged dispute with India’s tax authorities over Google’s tax practices seems to have nudged the search giant into action. The company has transferred its advertising services for customers in Asia Pacific Region to Google Asia Pacific Pte Ltd from its earlier practice of billing advertisers on behalf of Google Ireland.
The crux of the battle between Google and the Income tax authorities has been that the company has been booking revenues under Google Ireland for advertisements sold in India. The tax authorities disputed this practice and fined Google $14.5 mn earlier.
With this move, Google Asia Pacific Pte. Ltd. will assume all of the rights, duties, obligations, liabilities, and commitments covered by advertisers’ current agreement with Google Ireland Ltd, the company said. The change will be in effect from May 2011 onwards, and will take place over a period of weeks.
Interestingly India is missing from the list of countries where the change is applicable to advertisers. We assume it’s a slip up as Google AdWords has been sending the mailer to Indian advertisers as well.
Over the past two years Indian tax authorities have been turning up the heat on Multinational Companies (MNCs) including Google, Nokia and Samsung operating in the country. Google was fined $14.5 million for alleged tax evasion while recently Korean electronic major Samsung asked to pay up over $200 mn in taxes by authorities for income assessment during year of 2006-07.
Google’s AdWords Business model in India
To reduce tax liabilities, the California based company employs methods called the “double Irish” and “Dutch Sandwich”. These methods allow Google to take out revenues from India to a country with lower taxes such as Ireland by the way of royalties paid to the entity in Ireland.
Besides Google India and Samsung,Finnish handset maker Nokia’s premises were raided by tax authorities in India earlier this year for a suspected tax evasion to the tune of more than half a billion dollars. The Income Tax Department is also fighting a case against telecom player Vodafone and claiming $14,000 crore as tax and interest on the acquisition of Hutchison Essar.