Following the recent cases involving the Chinese smartphone brand Vivo, which is being investigated by the Enforcement Directorate (ED) for alleged money laundering, The Income Tax Department had also accused an Indian unit of Chinese technology firm HUAWEI of repatriating excessive sums to the parent in the payment of dividends, lowering its tax liability here in India.
The department said that HUAWEI Telecommunications India had sent back Rs. 750 crore, even though its income had been much lower for at least two fiscal years.
In February, the tax authorities blocked the firm’s bank accounts after going through this process and suspecting it of tax evasion. The Delhi High Court halted the attachment of HUAWEI’s accounts in April pending the department’s answer.
The department’s response to the company’s charges, seen by ET, was filed this week. HUAWEI denied the claims and said that its business was hurt by the accounts being frozen without warning. In an affidavit supporting the attachment, the income tax department called HUAWEI’s plea a “frivolous tactic to hinder departmental proceedings and avoid taxation.” The department said it had “incriminating” information on the corporation.
According to the tax division, the HUAWEI division’s books of accounts have not been produced “to date,” making it “difficult to determine the truth of the income stated by the company.” The information was essentially a dump of “transaction level details as retrieved from their ERP accounting system,” which “can not be regarded to be the books of accounts of the corporation.” Even these, it claimed, did not match the company’s final financial statements for the years 2016–17 and 2017–18.
The department said HUAWEI India didn’t disclose Yang Yi’s email, the transfer-pricing decision-maker. It’s crucial to review the communications to fully grasp the financial transactions and their rationale. The request was refused because the email may have included non-company info.
The department further said, “It is not in question that HUAWEI India’s books of accounts are not kept in India and only transaction-level data is retained on ERP servers in China, which the company claims is adequate to ascertain the requisite books of accounts.”
It said, quoting the Companies Act, “backup of electronic books of account, including those retained outside India, must be kept on servers in India.” The department said that until the first week of June, the corporation hadn’t located the physical servers in India.