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The Income Tax (IT) Department in India is investigating local units of Apple, Google, and Amazon for potential non-payment of taxes.

This is in connection with a probe that began in 2021.

The authorities now seek detailed explanations of transfer pricing practices of these companies, according to The Economic Times. The tax demand by the IT department exceeds Rs 5,000 crore.

Apple India Pvt Ltd, Amazon Seller Services India Pvt Ltd, and Google India Digital Services Pvt Ltd are under scrutiny.

The tax department is reportedly investigating the trio for transactions linked to advertising, marketing, promotional expenses, royalty payments, trading, and software development. The report says that the focus is on what tax authorities classify as “international transactions,” subject to transfer pricing (TP) adjustments. The companies dispute this categorisation, leading to ongoing discussions across different forums.

The tax investigation into Apple primarily centres on its Indian unit’s procurement of finished products from original equipment manufacturers and subsequent sale in the domestic market. While Apple contends that this is not an international transaction and falls outside taxation purview, the tax department argues it is an international transaction, ET reports.

Additionally, the Income Tax Department rejected Apple India’s justifications for expenses related to trading segments, resulting in an “alleged tax liability running into hundreds of crores”, a tax official reportedly told ET.

Amazon is facing a tax liability of over Rs 100 crore as the IT Department considers 50% of customer delivery charges as part of the Advertisement, Marketing, and Promotion (AMP) cost. Amazon has disputed this case.

For Google India, it is reported that certain transactions required by Form 3 CEB were not declared, deemed as international taxation by the revenue department, resulting in a tax liability. Form 3 CEB is mandatory for companies involved in international and specific domestic transactions with associated enterprises.

The companies can challenge the order before the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal (ITAT), and the higher courts. Google’s tax demands from previous years are currently under the Mutual Agreement Procedure (MAP), an alternate dispute resolution mechanism under Direct Tax Avoidance Agreements.