Govt slaps Samsung with $601 million tax demand for telecom imports

India has ordered Samsung and its executives in the country to pay $601 million in back taxes and penalties for dodging tariffs on import of key telecoms equipment, a government order showed, for one of the biggest such demands in recent years.

The demand represents a substantial chunk of last year's net profit of $955 million for Samsung in India, where it is one of the largest players in the consumer electronics and smartphones market. It can be challenged in a tax tribunal or the courts.

The company, which also imports telecoms equipment through its network division, received a warning in 2023 for misclassifying imports to evade tariffs of 10 per cent or 20 per cent on a critical transmission component used in mobile towers.

It imported and sold these items to billionaire Mukesh Ambani's telecom giant, Reliance Jio.

Samsung pushed India's tax authority to drop the scrutiny, saying the component did not attract tariffs and officials had known its classification practice for years.

But customs authorities disagreed in a confidential January 8 order that is not public but was reviewed by Reuters.

Samsung "violated" Indian laws and "knowingly and intentionally presented false documents before the customs authority for clearance", Sonal Bajaj, a commissioner of customs, said in the order.

Investigators found that Samsung "transgressed all business ethics and industry practices or standards in order to achieve their sole motive of maximising their profit by defrauding the government exchequer," Bajaj added.

Samsung was ordered to pay 44.6 billion rupees ($520 million), consisting of unpaid taxes and a penalty of 100 per cent.

Seven India executives face fines of $81 million, among them the network division's vice president, Sung Beam Hong, Chief Financial Officer Dong Won Chu and Sheetal Jain, a general manager for finance, as well as Nikhil Aggarwal, Samsung's general manager for indirect taxes, the order showed.

"The issue involves the interpretation of classification of goods by customs," Samsung said in a statement, adding that it complied with Indian laws. "We are assessing legal options to ensure our rights are fully protected."

India's customs authority and the finance ministry did not respond to Reuters' queries. Reliance also did not respond.

The incident comes as India toughens oversight of foreign companies and their imports.

Volkswagen and New Delhi are locked in a legal battle in which the automaker is challenging a record demand of $1.4 billion in import back taxes on grounds of misclassifying car parts.

The German company denies any wrongdoing in what it called a "matter of life and death" for its India business, but the dispute has rekindled foreign investors' fears over tax tussles.

The Samsung investigation began in 2021 when tax inspectors searched its offices in the financial capital of Mumbai and Gurugram near New Delhi, seizing documents, emails and some electronic devices. Top executives were later questioned.

The Samsung dispute centers on imports of the "Remote Radio Head", a radio-frequency circuit enclosed in a small outdoor module that tax officials called "one of the most important" parts of 4G telecoms systems.

From 2018 to 2021, Indian officials found, Samsung paid no dues on imports worth $784 million of the component from Korea and Vietnam.

The component fitted on telecoms towers transmits signals and is subject to a tariff, the government said, though Samsung disagreed on how it functions.

Samsung vehemently defended its classification, backed its case with four expert opinions, saying the component did not perform the functions of a transceiver and could be imported without any duty, the tax order said.

As counter evidence, tax officials cited 2020 letters from Samsung to the Indian government describing the component as a transceiver, which the government said is "a device which transmits" signals.

Samsung "was very much aware about the right classification of the impugned goods," the tax commissioner added.