Tax Evasion by Foreign Companies

 Data on dollars transferred abroad by foreign companies in India is not centrally maintained by the government. However, with a view to prevent shifting of profits out of India and consequent erosion of the Indian tax base, selected international transactions undertaken are analysed every year in accordance with the transfer pricing provisions contained in Chapter X of the Income Tax Act, 1961. The total quantum of transfer pricing adjustments made in the last three years are as under:

  Financial Year            Amount of adjustment (in Rs. Crores)

                        2011-12                                   23, 237

                        2011-12                                   44, 531

                        2012-13                                   70, 016

Chapter X, containing special provisions relating to avoidance of tax, was inserted in the Income Tax Act, 1961 vide the Finance Act, 2001. Section 92 (1) of the Income Tax Act, 1961 stipulate that income from an international transaction shall be computed based on the arm’s length principle. Further, income of foreign companies operating in India is taxed as per the extant provisions of Income Tax Act, 1961 and the various Double Taxation Avoidance Agreements. Some of the relevant sections of the Income Tax Act in this regard are section 9, 44BB, 44BBA, 44 BBB, 44DA, 115A etc.