Indian authorities may issue notices soon to more major IT services firms in an investigation of alleged tax evasion related to work done by their overseas offices, a government source said on Thursday, a day after Infosys was slapped with a $4 billion tax demand.
In serving its highest-ever tax demand on Infosys, the government accused India’s second-largest tech services company of evading taxes and sought ₹320 billion ($3.8 billion), or almost all its revenue for the quarter ended June 30.
Infosys said late on Wednesday it had received “pre-show cause” notices from the tax authorities but believed the relevant taxes had been paid. The company said in a statement it had paid its dues and is in compliance with central and state regulations.
Yet tax authorities are not confining their investigations to Infosys. “This is an industry-wide issue,” a senior tax official with knowledge of the matter told Reuters, adding that notices were likely to be sent to some other IT companies.
India’s finance ministry did not immediately reply to an email seeking comment.
Experts said more tax notices for the same alleged violations were likely to be in the offing.
“Issuing such a substantial show-cause notice is likely to set a precedent, leading to similar notices being issued to other multinational companies, particularly in the IT sector,” said Rajat Mohan, director at accounting firm MOORE Singhi.
The overseas offices carry out projects for Indian IT firms and provide services to international clients, among other functions.
Shares of Infosys were down one per cent at ₹1,868.25 on Thursday.
Infosys may be in for a long and protracted battle, some tax experts said.
“The pragmatic solution for Infosys lies in going to court and getting a stay on these proceedings,” said Abhishek Rastogi, founder of Rastogi Chambers, adding that the services were provided outside India and in that case the company should not have to pay any tax.
In the last year, India’s goods and services tax department has sent more than 1,000 notices to companies, including Life Insurance Corporation of India, Dr Reddy’s Laboratories and Ultratech Cement. Tax authorities have also issued notices to online gaming companies demanding a total of about ₹1 trillion in taxes that they have allegedly evaded.
Companies have challenged these demands in tribunals and courts.