BBC survey: Tax authorities say income, profits of company not commensurate with operations in India

The income and profits shown by various BBC group entities are “not commensurate” with the scale of their operations in India and tax has not been paid on certain remittances by its foreign entities, the income tax authorities said Friday, a day after they ended a three-day-long survey operation against the British media organisation.

The Central Board of Direct Taxes (CBDT) issued a statement without identifying the company but said the survey was conducted at the business premises of group entities of a prominent international media company which is engaged in the business of development of content in English, Hindi and various other Indian languages, advertisement sales and market support services, etc. Officials said the statement pertains to the British Broadcasting Corporation (BBC).

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The I-T department had launched the survey exercise on February 14 at BBC offices in Delhi and Mumbai and it ended after about 60 hours on Thursday night. The CBDT is the administrative authority for the tax department. The statement alleged various tax-linked irregularities against the London-headquartered company and accused it of using “dilatory tactics” during the course of the survey. “The survey revealed that despite substantial consumption of content in various Indian languages (apart from English), the income/profits shown by various group entities (of BBC) is not commensurate with the scale of operations in India.”

“…the department gathered several evidences pertaining to the operation of the organisation which indicate that tax has not been paid on certain remittances which have not been disclosed as income in India by the foreign entities of the group,” the CBDT said. The BBC, after tax teams left their premises on Thursday, said they will “continue to cooperate with the authorities and hope matters are resolved as soon as possible.” According to the CBDT statement, the tax authorities found that the services of “seconded employees” were utilised by the BBC for which reimbursement has been made by the Indian entity to the foreign entity concerned.

“Such remittance was also liable to be subject to withholding tax which has not been done. Further, the survey has also thrown up several discrepancies and inconsistencies with regard to Transfer Pricing documentation.” “Such discrepancies relate to level of relevant Function, Asset and Risk (FAR) analysis, incorrect use of comparables which are applicable to determine the correct Arms Length Price (ALP) and inadequate revenue apportionment, among others,” the statement added. According to I-T rules, transfer pricing “generally refers to prices of transactions between associated enterprises which may take place under conditions differing from those taking place between independent enterprises. It refers to the value attached to transfers of goods, services and technology between related entities”.

It also refers to the value attached to transfers between un-related parties which are controlled by a common entity. It said the survey has led to unearthing of “crucial evidences” by way of statement of employees, digital evidences and documents which will be further examined in due course. It is pertinent to state that the authorities recorded statements of only those employees whose role was crucial including those connected to, primarily, finance, content development and other production related functions, the CBDT said. It accused the media organisation of using “dilatory tactics” during the surprise operation.

“Even though the department exercised due care to record statements of only key personnel, it was observed that dilatory tactics were employed including in the context of producing documents/ agreements sought. Despite such stance of the group, the survey operation was conducted in a manner so as to facilitate continued regular media/channel activity,” the statement said. The survey prompted Opposition parties to denounce the I-T department action as they termed it “political vendetta”. The BJP had accused the BBC of “venomous reporting” while the Opposition had questioned the timing of the action that came weeks after the broadcaster aired a two-part documentary, “India: The Modi Question”, on Prime Minister Narendra Modi and the 2002 Gujarat riots.