Samsung India has less than two weeks to respond to the Indian tax department's claim stating it owes 1.14 billion rupees (US$207 million) in back taxes.
News site Livemint reported Monday the country's Income Tax Department issued a show cause notice to the Indian unit of the South Korean company. It stated the local arm did not deduct the TDS (tax deducted at source) from payments made to its parent company.
"It is observed from the assessment record that Samsung India has made huge payments to its parent company, Samsung Electronics, without deducting tax u/s 195 of the [double taxation avoidance agreement (DTAA)] which are to be disallowed and added back to the taxable income of the assessee company," the notice stated.
The DTAA specifies that "permanent establishments"--meaning a fixed place of business such as an office, branch, or factory--must pay the appropriate tax on profits generated in India.
In 2010, Samsung's own international tax division declared the Indian unit both a "permanent establishment" and a wholly-owned subsidiary, an unnamed Indian government official told Livemint.
"In that case, Samsung India was supposed to deduct TDS on payments made to Samsung Korea and sister concerns," the official said.
In response, a Samsung spokesperson said in the report it had yet to receive any official notice from the Indian government. Livemint noted the notice, mailed last Saturday, could take days to arrive.
Samsung must defend the allegations by April 14, 2013, it added.
Samsung is not the only company in India's tax collectors' sights. Finnish phonemaker Nokia was last week ordered to pay 20.8 billion rupees (US$383 million) in taxes dating back five years , but it applied for a stay to appeal the decision.