Weeks after its documentary taken off, BBC gets I-T knock

Officials in the government said the focus of the surveys on BBC is to look into “manipulation of prices for unauthorised benefits, including tax advantages”. They alleged BBC has been non-compliant under transfer pricing rules; persistent and deliberately violative of transfer pricing norms. It deliberately diverted a significant amount of profits, and did not follow the arm’s length arrangement in the case of allocation of profit, they claimed.

“Accordingly, the surveys have been conducted with a view to investigate BBC’s violation of the Transfer Pricing Rules and its diversion of profits,” an official said.

Transfer pricing refers to prices of transactions between enterprises which are associated with each other, and refers to the value attached to transfer of goods, services and technology between related entities or between unrelated parties but controlled by a common entity.

The tax department’s action comes weeks after the British broadcaster had on January 17 released a documentary on the 2002 Gujarat riots titled “India: The Modi Question”. On January 20, the Central government ordered YouTube and Twitter to take down links sharing the documentary, with officials saying it was found to be “undermining the sovereignty and integrity of India” and had “the potential to adversely impact” the country’s “friendly relations with foreign states” and “public order within the country”.

BBC office in Delhi. (Express Photo by Prem Nath Pandey)

As the surveys progressed, BBC News said it was fully cooperating with the tax authorities. “The Income-Tax authorities are currently at the BBC offices in New Delhi and Mumbai and we are fully cooperating,” the broadcaster said on Twitter. “We hope to have this situation resolved as soon as possible,” it said. UK government officials in New Delhi said they are closely monitoring reports of tax surveys conducted at the offices of the BBC in India.

Claiming that there has been persistent non-compliance with the rules for years by the British broadcaster, government officials said several notices have been issued to the BBC. “However, the BBC has been continuously defiant and non-compliant and has significantly diverted its profits,” a government official said.

Earlier, the tax department had flagged distribution revenue earned by BBC World Distribution Ltd, as chargeable to tax as royalty, along with determining whether it has a Permanent Establishment (PE) in India. In December 2022, the Delhi Bench of the Income Tax Appellate Tribunal ruled that the distribution revenue received by the company from distribution of BBC World News Channel in India, is “not in the nature of royalty”. It had also said that such revenue, which had already been offered to tax by the Indian entity, BBC World India Pvt. Ltd, and that “no part of such income can again be attributed to the assessee notionally and taxed in India” and hence, asked for deletion of such addition by the tax authorities for 2007-08 and 2008-09 assessment years.

While the I-T survey on Tuesday is not connected to this particular case, sources said the tax department has had several run-ins with the BBC in the past over transfer pricing norm violations.

Tax officials clarified the actions undertaken are “surveys” and not searches or raids. In September 2022, the department had conducted surveys at the premises of think tank Centre for Policy Research (CPR); global non-profit organisation Oxfam India; and the Independent and Public-Spirited Media Foundation (IPSMF). The same day, it had also conducted searches at over 100 locations across at least eight states as part of action against some registered unrecognised political parties.

Surveys start during normal business hours, whereas searches can be conducted at any time of the day. Unlike a survey, which is conducted only in official premises, a search, under Section 132 of the I-T Act, can be conducted on both residential and business premises, with a broader provision to search premises where the tax department has reasons to believe someone is in possession of undisclosed income or property like money, bullion, or gold.

The effect of transfer pricing is that the parent company or a specific subsidiary tends to produce insufficient taxable income or excessive loss on a transaction. For instance, profits accruing to the parent can be increased by setting high transfer prices to siphon profits from subsidiaries domiciled in high tax countries, and low transfer prices to move profits to subsidiaries located in low tax jurisdiction.