India issues $601 million tax demand to Samsung for telecom imports

India's tax authorities have ordered Samsung to pay $601 million in back taxes and penalties for evading tariffs on essential telecom equipment imports. This is one of the largest such demands in recent years, accounting for a significant portion of Samsung's net profit of $955 million in India last year.

The dispute stems from Samsung's misclassification of key telecom components used in mobile towers, which allowed the company to avoid tariffs ranging from 10% to 20%. The items were sold to Reliance Jio, owned by billionaire Mukesh Ambani.

Samsung has contested the tax authority's actions, insisting that the components in question were not subject to tariffs and that the authorities were aware of its classification practices. However, customs officials have disagreed, alleging that Samsung intentionally misrepresented documents and violated Indian laws.

The company has been directed to pay a total of 44.6 billion rupees ($520 million) in taxes and penalties, while seven of its Indian executives face fines amounting to $81 million. Among those targeted are high-ranking officials in Samsung's network division, including the vice president, CFO, and general manager of finance.

The controversy revolves around the "Remote Radio Head"—a crucial component of 4G telecom systems. From 2018 to 2021, Samsung imported $784 million worth of this component without paying duties, despite it being subject to a tariff according to Indian tax officials.

Samsung has vowed to challenge the tax demand, emphasizing its adherence to Indian law and its commitment to protecting its rights. The case highlights growing tensions between foreign companies and India's tax authorities, with other high-profile disputes, such as the ongoing $1.4 billion tax demand from Volkswagen, further stoking concerns among global investors.