Taxmen call on WNS; slap tax demands of about Rs 557 crore

The company, however, has challenged the I-T notices in courts of law.

 

The tax demands, which include taxes on income and services, are for financial years from 2003 to 2010, WNS has said in its annual report for 2012-13 fiscal year submitted to the US Securities Exchange Commission.

 

Among India's leading pure-play BPO providers, WNS had a headcount of 25,520 as of March 2013. It has delivery centres across nine countries of Costa Rica, India, the Philippines, Poland, Romania, South Africa, Sri Lanka, the UK and the US.

 

"We may be required to pay additional taxes in connection with audits by the Indian tax authorities," WNS said in its annual report.

 

"These orders assess additional taxable income that could in the aggregate give rise to an estimated Rs 282.73 crore ($52.1 million based on exchange rate on March 31, 2013) in additional taxes, including interest of Rs 102.94 crore ($19.0 million)," the company said in the report.

 

The firm added that "from time to time, we receive orders of assessment from Indian tax authorities assessing additional taxable income on us and/or our subsidiaries in connection with their review of our tax returns. We currently have orders of assessment for fiscal year 2003 through fiscal year 2010 pending before various appellate authorities."

 

The company follows April-March financial year.

 

The assessment orders allege that transfer prices applied by WNS to certain of the global transactions between WNS Global, one of its Indian subsidiaries, and other wholly-owned subsidiaries were not on "arm's length terms, disallow a tax holiday benefit claimed by us, deny the set-off of brought forward business losses and unabsorbed depreciation and disallow certain expenses claimed as tax deductible by WNS Global", it added.

 

Transfer pricing deals with the technique where parent companies sell goods and services to subsidiary entities at an inflated price to deliberately reduce profits and tax liability.

 

The law requires that goods and services should be sold to subsidiary companies at arm's length price -- the price at which goods are traded between unconnected companies.

 

Taxing these units has become a complex area for, with the government often disagreeing on the profits declared by a foreign company for its Indian unit.

 

WNS in its annual report said: "In addition, we currently have orders of assessment pertaining to similar issues that have been decided in our favour by first level appellate authorities, vacating tax demands of Rs 240.08 crore ($44.2 million based on exchange rate on March 31, 2013) in additional taxes, including interest of Rs 74.87 crore ($13.8 million)."

 

The income tax authorities have filed appeals against the order at higher appellate authorities, it added.

 

"In March 2009, we also received an assessment order from the Indian Service Tax Authority demanding payment of Rs 34.81 crore ($6.4 million based on the exchange rate on March 31, 2013) of service tax and related penalty for the period from March 1, 2003 to January 31, 2005," it said.

 

The assessment order alleges that service tax is payable in India on BPO services provided by WNS Global to clients based abroad as the export proceeds are repatriated outside India by WNS Global, the company said in the report.

 

On acquisition of Aviva Global Services, the UK-based insurance firm's BPO in India and Sri Lanka, for $230 million in July 2008, WNS said Indian government has sought "information relating to our acquisition."

 

"For example, in December 2012, we received a request from the relevant income tax authority in India for information relating to our acquisition in July 2008 from Aviva of all the shares of Aviva Global, which owned subsidiaries with assets in India and Sri Lanka," it added.

 

WNS said that it has deposited some amount with the government.

 

"As at March 31, 2013, we have provided a tax reserve of Rs 91.04 crore ($16.8 million based on the exchange rate on March 31, 2013) primarily on account of Indian tax authorities denying the set off of brought forward business losses and unabsorbed depreciation," it said.

 

WNS have appealed against these orders of assessment before higher appellate authorities, it added.

 

"We have deposited some portion of the disputed amount with the tax authorities and may be required to deposit the remaining portion of the disputed amount with the tax authorities pending final resolution of the respective matters."

 

On the demand notice for taxes on the income, the BPO major said that it expects to wins the cases.

 

"...we believe these orders are unlikely to be sustained at the higher appellate authorities and we intend to vigorously dispute the orders of assessment," the firm added.

 

However, regarding the service tax demand of March 2009, the company said it is not hopeful of the judgement being in its favour.

 

"No assurance can be given, however, that we will prevail in our tax disputes," it said.

 

"If we do not prevail, payment of additional taxes, interest and penalties may adversely affect our results of operations, financial condition and cash flows. There can also be no assurance that we will not receive similar or additional orders of assessment in the future," it said.