Why Is Samsung Pointing To Reliance Jio In Its Rs 4,300 Cr Tax Dispute?

Samsung is fighting a huge tax bill in India, asking a tribunal to cancel a $520 million (Rs 4,394 crore approx.) tax demand. Indian tax authorities claim the company misclassified imports of mobile tower equipment to avoid paying tariffs.

This equipment, used for telecom networks, was sold to Reliance Jio, the telecom giant owned by billionaire Mukesh Ambani, between 2018 and 2021.

Samsung argues that Indian officials were already aware of how the equipment was imported.

According to the company, Reliance Jio had been similarly importing the same equipment for years, without any issues or tariff payments, until 2017.

Samsung says that tax officials knew about this practice but never questioned it when the company did the same thing.

Reliance Jio’s Role In Case

In its legal challenge, Samsung points out that the tax department had been aware of this business model for a long time but did not raise concerns.

Samsung claims that when the Indian tax authorities warned Reliance about the practice in 2017, Reliance did not inform Samsung, and the tax authorities never mentioned it to the company either.

"The classification adopted by the appellant (Samsung) was known to the authorities, however, the same was never questioned ... Department was fully aware," Samsung’s legal filing said.

Samsung Claims It Was Denied Fair Hearing

Samsung is also unhappy with how the case has been handled. The company claims the tax authorities rushed through the decision and didn’t give them enough time or space to present their side of the story.

Samsung says it was not given "a fair opportunity" to argue its case, even though the stakes were very high.

Additional Fines and Financial Impact

The tax demand is a significant blow to Samsung, especially since it represents a large chunk of the company’s net profit in India.

In 2023, Samsung reported a net profit of $955 million in the country. In addition to the $520 million tax bill, the company is facing an $81 million fine for seven of its employees, bringing the total tax demand to $601 million.

This is not the first time a big foreign company has faced a hefty tax bill in India. Recently, Volkswagen also challenged a $1.4 billion tax demand related to misclassifying component imports.

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What Is Full Dispute?

At the heart of the case is a component called the "Remote Radio Head," a crucial part of 4G telecom systems.

Samsung imported this component worth $784 million from Korea and Vietnam between 2018 and 2021, but tax officials say the company misclassified it to avoid paying the proper tariffs.

The Indian tax authorities accused Samsung of trying to maximize profits at the expense of the government by misclassifying the components. They claimed Samsung had violated business ethics and industry standards.

Despite the accusations, Samsung continues to defend its actions and seeks to have the tax demand cancelled. The company argues that it did nothing wrong and that the Indian authorities were well aware of how it imported the equipment.