Mumbai, May 25, 2018

This comes as a huge blow, as industry experts told the publication that total tax demand emerging from the move will be at least Rs 10,000 crore, thus denting the revenues of several companies.

For those who are unaware, AMP expenses (advertisement, marketing and promotional), which have traditionally been qualifiable for tax deductions, will not be considered from now onwards. 

The Income Tax department has struck another blow on multinational companies in India after it started sending notices to them, suggesting that tax deductions on dedicated expenses such as advertising, marketing and sales will be disallowed under an unused provision of the Income Tax Act, reported The Economic Times. It should be noted that the tax officials have sent notices to multinational companies such as Hindustan Unilever, P&G, L’Oreal, LG and Maruti Suzuki.  

This comes as a huge blow, as industry experts told the publication that total tax demand emerging from the move will be at least Rs 10,000 crore, thus denting the revenues of several companies. For those who are unaware, AMP expenses (advertisement, marketing and promotional), which have traditionally been qualifiable for tax deductions, will not be considered from now onwards.  

The report goes on to say that as AMP expenses are a part of costs bared by the company, barring such deductions would increase taxation for a company. It may be noted that the government has earlier said that these expenses are mostly linked with overseas brand building, suggesting that this is the reason behind the plea to disallow such deductions under Section 37 of the Income Tax Act – a section that deals with recognition or legitimacy of business expenses.  

Now, non-digital multinational firms may face up to 42% tax

In a case where a company determines its profit after deducting the AMP costs, then the tax amount would be lower than a situation where the total AMP expenses are also included under the tax bracket. What this essentially means is that if AMO deductions are not allowed, the amount of tax outgo would increase significantly. This is not the first time that tax officials have raised questions over this deductions but never before has the Section 37 of the I-T Act been invoked.  

Many tax experts have suggested that the aforementioned section of the I-T act was primarily used for sporadic cases, this is the first time it is being referred to end the debate on AMP deductions.  These notices. It should be noted that the IT department has been sending such notices since 2010. Most of the new notices, however, are being sent to multinationals that are yet to come under the AMP lens. While the I-T department’s logic has been rejected when companies challenged it in court, many of the cases are still pending with the Supreme Court.  

[Times Now]