India has ordered Samsung and its executives to pay $601 million (Rs. 5,174 crore approx.) in back taxes and penalties for evading tariffs on telecom equipment imports, marking one of the largest such demands in recent years, a government order cited by Reuters reported. This hefty fine targets the South Korean giant’s practices in a key market where it dominates consumer electronics and smartphones.
Key Details of the Tax Demand
- Total Amount: Samsung faces a $601 million penalty, including 44.6 billion rupees ($520 million) in unpaid taxes and a 100% penalty.
- Executives Fined: Seven India-based executives are fined $81 million, including Sung Beam Hong (network division vice president), Dong Won Chu (CFO), Sheetal Jain (finance general manager), and Nikhil Aggarwal (indirect taxes general manager).
- Reason: Misclassification of “Remote Radio Heads,” a critical 4G telecom component, to avoid 10% or 20% tariffs.
- Imports Involved: $784 million worth of components imported from Korea and Vietnam between 2018 and 2021, sold to Reliance Jio, owned by billionaire Mukesh Ambani.
- Profit Impact: The demand is a significant chunk of Samsung’s $955 million net profit in India last year.
The company can challenge this in a tax tribunal or courts, the report noted.
The Investigation and Allegations
The issue surfaced in 2021 when tax inspectors searched Samsung offices in Mumbai and Gurugram, seizing documents, emails, and electronic devices. Top executives were later questioned.
A confidential January 8 order, reviewed by Reuters but not public, accused Samsung of “|violating” Indian laws. Customs commissioner Sonal Bajaj stated that Samsung “knowingly and intentionally presented false documents before the customs authority for clearance.”
She added, “Samsung transgressed all business ethics and industry practices or standards in order to achieve their sole motive of maximising their profit by defrauding the government exchequer.”
Samsung’s Defense
Samsung labeled the dispute an “interpretation of classification of goods by customs” and insisted it complied with Indian laws. It argued the Remote Radio Head doesn’t attract tariffs, claiming officials knew its classification practice for years—a stance backed by four expert opinions asserting it’s not a transceiver.
However, tax officials cited 2020 letters from Samsung to the government describing it as a transceiver, a device that “transmits” signals. Bajaj noted, “Samsung was very much aware about the right classification of the impugned goods.” The company responded, “We are assessing legal options to ensure our rights are fully protected.”
What’s the Remote Radio Head?
The “Remote Radio Head” is a radio-frequency circuit in a small outdoor module, called “one of the most important” parts of 4G telecom systems by tax officials. Mounted on telecom towers, it transmits signals and is subject to tariffs, the government said. Samsung imported these without duties from 2018 to 2021, sparking the conflict.
India’s Crackdown on Foreign Firms
The report highlighted India’s tougher oversight of foreign companies. Volkswagen, for instance, is locked in a legal fight over a $1.4 billion tax demand for misclassifying car parts, calling it a “matter of survival” for its India business, though it denies wrongdoing. Such disputes are reigniting foreign investors’ fears over tax tussles.
Samsung’s India Performance
Despite the tax issue, Samsung remains strong in India. In 2024, ‘Made in India’ smartphone shipments grew 6% year-on-year, with Samsung and Apple accounting for 94% of exports, according to Counterpoint Research’s ‘Make in India’ Service report. Samsung’s manufacturing rose 7%, driven by growing exports and the government’s PLI (production-linked incentive) scheme encouraging local production.
Next Steps
Samsung told IANS it “fully complies with the laws in India” and is “currently assessing legal options” after the Rs. 5,174 crore ($601 million) demand. A spokesperson reiterated, “The parts did not attract any import duties,” but customs authorities have not commented.
The case highlights India’s stringent tax enforcement, raising concerns among foreign investors, with more updates expected as the situation unfolds.