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India says HP and Infosys used window dressing to shrink tax bills

And we do mean window dressing: Infosys allegedly claimed the cost of curtains

Internet Security Threat Report 2014

India's tax authorities believe Infosys and HP owe it lots and lots of unpaid taxes.

Despite a New Delhi statement last year which was thought to have reprieved several IT companies from additional tax demands, the Income Tax department has now begun to reassess what’s owed by Infosys and HP.

The taxman’s beef is that the companies claimed deductions for software and manpower developed and deployed on their clients’ premises, thus disqualifying them from exemptions which were only valid for work carried out at their own business operations.

Such exemptions were part of the Software Technology Park (STP) scheme which existed from 1991 to 2011 but didn’t apply to manpower sent abroad or software developed on a client’s premises, according to Times of India.

The IT giants apparently challenged the taxman back in January 2013 and won, with the Central Board for Direct Taxes ruling the following:

There must exist a direct and intimate nexus or connection of development of software done abroad with the eligible units set up in India and such development of software should be pursuant to a contract between the client and the eligible unit.

However, the Income Tax department has now revisited the case, claiming that a “large body of work” with clients outside of India had absolutely nothing to do with either Infosys or HP’s STP operations on the sub-continent.

It’s alleged that Infosys even submitted expenses for landscaping as part of the scheme.

HP and Infosys have apparently filed petitions to Karnataka high court to stop the reassessment process.

There's no word yet on how much they might have to fork out, although at the last count Infosys apparently owed the taxman Rs4.2bn (£41m).

The latest revelations are part of a long and winding narrative involving the Indian authorities clamping down on perceived tax irregularities on the part of both local and foreign IT giants.

Vodafone, Nokia and Google, among others, have all been hit with big tax bills in the past couple of years. ®

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