Dear Economic Times

You are, allegedly, a ‘respected business newspaper’. So, i am kind of surprised, though I shouldn’t be considering your parentage, that you didn’t know – that transfer pricing is a shady practise that is considered illegal attracts penalties in most parts of the world. Including the world that you aspire to belong (the gora world). Why is it illegal, because it is a method of tax avoidance that deprives economies of tax revenues.

What is Transfer Pricing – this is for the journalist who obviously is clueless about the term, as is the editor (does your paper still hire them?) who let the article pass. Transfer Pricing is:

The price that is assumed to have been charged by one part of a company for products and services it provides to another part of the same company, in order to calculate each division’s profit and loss separately.

The largest accounting firms in the world have entire departments that help transnational corporations – companies that operate out of multiple countries and tax regimes – sanitize transfer pricing. What does Transfer Pricing do? it

shift profits to low tax jurisdictions and avoid taxes in countries where corporations have substantial trading operations.

So, if the IT department sent a notice to Google, it may not be one grand conspiracy to curtail free speech, but a tax order.

For the assessment year 2008-09, the order says Google India has admitted revenue of only Rs 7.49 crore instead of showing the “correct revenue of Rs 167.32 crore”.

Besides, no tax was deducted at source against the amount credited to Google Ireland. Based on the tax on the ‘gross income’ and TDS, the department has made a claim of Rs 74 crore for the year.

There is a serious amount of difference between the tax paid on 7.49 crores and 167.32 crores.

While the opening paragraph is nice, juicy and sensational – and possibly will translate to screen well with the soundtrack of jackboots, it is possibly erroneous

Around the same time Telecom Minister Kapil Sibal was planning to pull up Google, the Income-Tax Department was giving the final touches to a tax demand on the Indian arm of the global search engine company.’

The second paragraph sheds light on the picture better,

Google India Pvt Ltd, according to the tax office, has not offered its entire income for taxation and the profit and loss account filed by the company “does not give complete picture of the businesses”.

The department has questioned Google India’s practice of paying tax on its ‘net’ income from advertisements, after crediting a sizeable amount as distribution fees to Google Ireland. Google India runs the ‘Adwords’ programme whereby advertisements that appear on its website are sold in India to Indian business establishments.

Companies, and people, pay taxes. Whether they like it or not. I don’t – either as an individual or a company relish the idea of paying taxes. But, I do. there is legal avoidance, and there is borderline evasion – it would be nice if facts are  before articles are published.

It is nice to see the Government as the Big Bad Wolf – and it possibly is. But, in this case, it is highly likely that it is not censorship but genuinely tax avoidance.

If the ET argued against the principle of tax in general, or why transfer pricing is a good business practise, I would be impressed, but this is just shoddy, biased and inaccurate  reporting (reportage is not supposed to be biased. that is the role of op-eds and columns – just a reminder).

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btw – just a question. was that paid news, or was it erroneous because no one knew better ?

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declaration – i don’t normally read the ET. But, saw a whole bunch of otherwise rational people go into a hand wringing mode on the tax order. I hate paying taxes too, can i claim that since i oppose Governmental stupidity, i should be exempt from my tax liability ?