Samsung Ordered to Pay $601 Million in Back Taxes by India
India has ordered Samsung and its executives in the country to pay $601 million in back taxes and penalties for dodging tariffs on the import of key telecoms equipment, as per a government order. This demand represents one of the largest in recent years and constitutes a substantial portion of last year’s net profit of $955 million for Samsung in India, where it is a significant player in the consumer electronics and smartphone markets. The company has the option to challenge the order in a tax tribunal or the courts.
In 2023, Samsung received a warning for misclassifying imports to evade tariffs of 10% or 20% on a vital transmission component used in mobile towers. These items were imported and sold to billionaire Mukesh Ambani’s telecom giant, Reliance Jio. Samsung has urged India’s tax authority to drop the scrutiny, arguing that the component in question did not attract tariffs and that officials were aware of its classification practices for years. However, customs authorities refuted this claim in a confidential January 8 order, citing violations of Indian laws.
Sonal Bajaj, a commissioner of customs, stated in the order that Samsung “knowingly and intentionally presented false documents before the customs authority for clearance.” Investigators concluded that Samsung “transgressed all business ethics and industry practices in order to achieve their sole motive of maximising their profit by defrauding the government exchequer.”
As part of the order, Samsung has been mandated to pay 44.6 billion rupees (approximately $520 million), which includes unpaid taxes and a penalty of 100%. Additionally, seven executives in India face fines totaling $81 million, including Sung Beam Hong, the vice president of the network division, Chief Financial Officer Dong Won Chu, and Sheetal Jain, a general manager for finance, along with Nikhil Aggarwal, Samsung’s general manager for indirect taxes.
In a statement, Samsung noted, “The issue involves the interpretation of classification of goods by customs,” emphasizing that it complied with Indian laws. The company mentioned that it is assessing legal options to ensure its rights are fully protected. India’s customs authority and the finance ministry did not respond to inquiries regarding the matter, nor did Reliance.
This incident aligns with India’s increasing oversight of foreign companies and their imports. Volkswagen finds itself embroiled in a legal battle with New Delhi, contesting a record demand of $1.4 billion in import back taxes based on allegations of misclassifying car parts. The German company has denied any wrongdoing, describing the dispute as a “matter of life and death” for its India business, which has reignited fears among foreign investors regarding tax disputes.
The investigation into Samsung commenced in 2021, when tax inspectors conducted searches of the company’s offices in Mumbai and Gurugram, seizing various documents, emails, and electronic devices. Top executives were subsequently questioned as part of the inquiry.
At the center of the Samsung dispute are imports of the “Remote Radio Head,” a radio-frequency circuit contained in a small outdoor module that tax officials have labeled as “one of the most important” components of 4G telecommunications systems. From 2018 to 2021, Indian officials discovered that Samsung paid no dues on imports valued at $784 million for this component from Korea and Vietnam. The government maintains that the component, which fits onto telecoms towers and transmits signals, is subject to tariff, a stance Samsung disputes regarding its function.
In defending its position, Samsung has stated that the component does not operate as a transceiver and can be imported duty-free, supporting its case with four expert opinions. However, tax officials countered this with letters from Samsung to the Indian government dated 2020, wherein the company described the component as a transceiver, which they defined as “a device that transmits” signals.
The tax commissioner highlighted that Samsung was “very conscious about the correct classification of the impugned goods,” indicating the complexity surrounding the classification of telecommunications equipment in India.