INFY TAX: Need help from tax experts!!!!!

Muthry’s job is very interesting. Cleaning the dirt all the time. But the dirt Murthy leaves behind is so overhelming that sometimes I feel hopeless.

But I am getting lot of encouragement from readers response and hence decided to dish out next analysis.

This time let us check through following statement made by Murthy recently.

Reproduced in part here.

“IT companies pay Income Tax to the government and their employees spend a major portion of their income in the place they live. We have paid for it. Nobody is doing anybody a favour,”

Please read through analysis and then decide for yourself if Murthy’s statement that he paid taxes makes any sense.

First let us check out who pays what tax. INFY has lot of brand image that it is doing a lot to the society. So I will be happy if INFY does marginally better than any other company. But let me be very kind to INFY so I will lower the bar. INFY would win even if it manages to beat companies who do not have good social image. Arbitrarily I chose some companies from America, because America is the land of a devil called capitalist. A capitalist would only worry about profit and nothing else we shall say this for the time being.

INFY makes software and you can get INFY’s latest Income statement from here

Similarly you can get income statement of Microsoft from here and IBM from here.

We have chosen Microsoft because the rumor has it that it is very profitable and IBM because, bulk of its revenues come from consulting just like that of Infosys.

And here is the spread sheet that puts all data together so that we can compare INFY, Microsoft and IBM

Here is snap shot of the comparison in image form. Click on the thumbnail to view it.

tax comparison

Now let us discuss the tax.

As you can see, INFY paid a tax of 70 mil USD on an income of 599 mil USD – That is 11.69%
Microsoft paid a tax of 1.17 billion USD on an income of 3.47 billion USD – That is 33.95%
IBM paid a tax of 1.35 billion USD on an income of 5.39 billion USD – That is 25.03%

But matter does not end there. Somehow the figure 70 million USD in INFY tax sounded familiar.

I checked up INFY annual report from here.

70 million USD is equivalent to 303 crore INR shown on page 29 of INFY annual report.

But there is more to it. On page 52 there is small table that mentions that out of 303 crore INR shown as tax, around 247 crore INR is Overseas tax. Explanation of Overseas tax is that it is the tax paid by INFY when employees are deputed abroad. But Income tax regulations under section 91 allow rebates for double taxation. So what is the amount and why is this shown?

Then the wisdom strikes. Yes it is the amount contributed to payroll tax/social security tax when employees work abroad. Social security even though called a tax, it is more like contribution to provident fund. INFY can claim deduction on any contributions it makes to employee provident fund or social security. So how come this amount is shown as tax liability??? Then there is flash of wisdom. INFY does not pay any tax anywhere, just to buy respectability it shows 303 crore INR as the equivalent of world wide payroll taxes it is force to pay when employees get deputed abroad. Strange calculation. Can tax experts comment on this

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6 Responses to INFY TAX: Need help from tax experts!!!!!

  1. […] not forget to read the latest blog on tax issues at INFY here . It will make your blood boil because you know the taxation in […]

  2. V Rao says:

    Sir,

    The Infy pays only 11.69% tax because there is provision to deduct profits from operations for about 10 years.

    Secondly, Infy can claim tax deduction on the Social Security contribution towards its employees only if there is such a provision. Nowhere is it mentioned that Rs247 Cr is towards the SS contribution.

    A big company cannot hoodwink many countries by some accounting fraud. If Infy is involved in such an act, it is bound to show up somewhere.

    Muthry clarifies

    My contention is that the figure 11.69% itself is very high if you were to deduct profits from operations. 80% of this tax is paid abroad ( as per INFY annual report ) However on Minority Interest INFY shows a profit of 5 mil USD. So tax on that account may not be more than 5 mil USD !!!. So how come tax balloons to 70 mil USD. I guess INFY has to provide more explanation. At present all indication is that Payroll taxes are included in this!!!

  3. Subbu says:

    This blog wants cheap publicity… U guys Suck…., We Indians do not know how to treat Legends with respect. Be it Sachin Tendulkar or NRN (For Example). I want to know whether the blog writer has the vison (that is create a world class company)…
    U are all Envious and (deleted)

    Muthry clarifies

    The most important contribution to America is “expiration of ideas”. Indians need to stop idol worshiping and develop analytical and scientific temper. Murthy is a public figure and he owes explanation to the public. As for Sachin controversy, I am not part of those bloggers. All that I want is a healthy criticism and fresh perspective and not idol worship. You asked me if I had the vision like NRN. Who knows oneday NRN may be working for me.

    But as of now, I am taller than NRN in one aspect.I have the pride that I paid taxes that too two countries for the same income!!
    As for your other unprintables they do not contribute to healthy discussion I have deleted them.

  4. vinay says:

    guruve…i dont what ur agenda is ..but ur math and finance skills both suck, pls do the calculation for the annual data and not the quarter data ( esp. for IBM and MicroSoft)

    Muthry clarifies

    Vinay,

    These calculatations are not mine. They are from Yahoo finance. Probably you are not aware of American accounting terms and hence feel uncomfortable

    Yahoo finance, lists out quarterly data for US companies and only annual data for INFY. Since we are trying to figure out tax percentage which is a ratio, it does not matter if the data is annual or quarterly. I have confirmed that tax percentage for Microsoft and IBM does not change drastically from quarter to quarter. If you have a better way to calculate, other than how Yahoo finance calculates I can give access to spreadsheet so that you can make modifications to press your point.

  5. Doddi Buddi says:

    Saar, Muthry awarey,

    What you said below is gold! IMHO India is suffering from Tendulkar effect. Some bastard dwarf fuck is always a non-performer and Indians continue to drink through his ass! What gives? Why are Indians so much lacking in guts? Pride? Why can’t we dump this little arse-faced monkey fuck?

    Then we have NRN who is only a clever clever accountant guy who is ‘playing the US Tax System’! Oh boy! with such heroes how can India survive?

    /**************************************************/
    Muthry clarifies

    The most important contribution to America is “expiration of ideas”. Indians need to stop idol worshiping and develop analytical and scientific temper. Murthy is a public figure and he owes explanation to the public. As for Sachin controversy, I am not part of those bloggers. All that I want is a healthy criticism and fresh perspective and not idol worship. You asked me if I had the vision like NRN. Who knows oneday NRN may be working for me.

    But as of now, I am taller than NRN in one aspect.I have the pride that I paid taxes that too two countries for the same income!!
    As for your other unprintables they do not contribute to healthy discussion I have deleted them.

  6. Ron says:

    for a report about subsidies provided by chandigarh govt by providing subsidized land to infoaya, wipro, see http://chandigarhland.org/Infosys/infosys-land-subsidy.htm

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