Google’s denial

The Bermuda outfit is a subsidiary of Google Ireland, the transactions carried out at this unit were called “double Irish” in Tax Parlance. "Google places great importance on following local law and we comply with applicable tax rules in all countries where we operate. We cannot comment further on this," said a Google India spokesperson, in response to an email from ET. The company had earlier clarified that there is no earning which was not reported.

MNC, a branch of TOI, says that Google Ireland “is in the business of selling, marketing and supporting certain Internet search, advertising system, and information organization and management technology products and services".

According to tax department, Google India has "habitually concluded contracts in the name of Google Ireland Limited as well as habitually secured orders in India for Google Ireland Limited", establishing itself as an independent entity and a permanent establishment of Google Ireland Limited in India.  And the permanent status drastically changes the tax implications for the entity. The tax office which worked on the Google Ireland activities found that the distribution fees for the company “excessive and unreasonable" and found that the profit shown was deflated.

"And Declaration of revenues on a net basis instead of showing it on a gross basis is directly in violation of the accounting principles given by the Institute of Chartered Accountants of India. To this extent, the assessed company has violated the principles of accounting in declaring the incomes," said the department. Google India had declared the 'AdWords' advertising revenue on a 'gross basis' in 2006-2007 but this system was changed in assessment years 2007-08 and 2008-09.