Why British insurer Aviva's Indian unit has been fined $7.5M
What's the story
British insurer Aviva's Indian subsidiary has been slapped with a $7.5 million fine by local authorities after an investigation into fraudulent activities.
The probe revealed the company had generated bogus invoices to distribute illegal commissions and falsely claim tax credits.
This significant tax demand comes as a major blow to Aviva's operations in India, which reported a post-tax profit of just $10 million in the 2023-24 fiscal year.
Fraudulent activities
Aviva India's illicit commission payments
Between 2017 and 2023, Aviva India paid around $26 million to vendors who allegedly provided marketing services.
However, Indian tax authorities argue that these vendors were just a front for Aviva to pay its agents exorbitant commissions beyond regulatory limits.
Using this system of fake invoices and cash transactions, the firm fraudulently claimed tax credits and evaded taxes amounting to $5.2 million.
Ruling details
Tax commissioner's ruling on tax evasion
After taking Aviva's defense into account, Joint Tax Commissioner Aditya Singh Yadav ruled that the company had evaded taxes worth $3.8 million.
The firm is now required to pay the amount along with a 100% penalty, amounting to $7.5 million.
This ruling formed part of a February 5 order reviewed by Reuters, which has not yet been made public.
Company stance
Aviva India's response and future actions
Responding to the order, Aviva India said it will contest the latest order through an appeal. The order will have no impact on its operations.
The company operates in partnership with Dabur Invest Corporation, a top local firm, owning 74% of the business after raising its share from 49% in 2022.
Before the tax authority, Aviva denied any wrongdoing and insisted the vendors were legitimate service providers.