India’s corporate tax landscape in 2024 is facing a dramatic surge in litigation. With a rise in scrutiny from the Income Tax Department, multinational corporations (MNCs) operating in India are increasingly exposed to audits, transfer pricing disputes, TDS inquiries, and reassessment notices. The growing number of litigation cases signals that tax compliance is no longer just a back-office function but a key strategic priority for businesses. In this environment, MNCs must be proactive in managing their tax risk to stay ahead.
At KNM India, we specialize in providing corporate advisory services in India, guiding businesses through this increasingly complex environment to ensure compliance and mitigate risks associated with tax litigation.
Why Is There a Surge in Tax Litigation?
Several factors are driving the increase in corporate tax litigation in India. First, there has been a significant shift towards digital assessments in the form of the faceless assessment scheme, which leverages artificial intelligence to quickly identify red flags in tax filings. This accelerated audit process has led to more scrutiny and increased litigation. Additionally, the Section 148A reassessments have triggered the reopening of older cases, even those stretching back up to 10 years. Other contributors include TDS mismatches, especially in cross-border transactions, and disputes regarding Transfer Pricing (TP) adjustments.
MNCs in India are particularly susceptible to these issues, with common pain points such as underreporting or misclassifying cross-border services, and errors in TDS filings. The Equalization Levy, GST discrepancies, and compliance with BEPS guidelines also contribute to a rising number of disputes and notices from the Income Tax Department. In 2024, 65% of MNCs faced audits due to tax law misunderstandings.
What Are the Common Triggers for MNCs?
MNCs entering the Indian market often face litigation due to several common issues. These include incorrect classification of cross-border services, failure to disclose a Permanent Establishment (PE) in India, and gaps in TDS filings, particularly for payments like royalties or technical services. Additionally, disputes around Transfer Pricing (TP), Base Erosion and Profit Shifting (BEPS) documentation, and Country-by-Country Reporting (CbCR) are frequent triggers for litigation.
With complex laws around foreign remittances and taxes, many MNCs find it difficult to stay compliant with all the regulatory changes. Any errors or oversights in these areas can lead to substantial financial penalties or extended litigation processes.
The Legal and Financial Risks at Stake
Failure to manage tax and compliance issues effectively can result in hefty penalties or even criminal prosecution. For example, under Sections 271 and 270A of the Income Tax Act, companies could face large fines for underreporting income or failing to comply with regulatory provisions. Companies failing to meet TDS obligations can face prosecution under Section 276B for non-compliance. Additionally, failing to address Transfer Pricing adjustments or misreporting income could escalate disputes to ITAT, High Courts, or even the Supreme Court.
MNCs also run the risk of international blacklisting due to non-compliance with Economic Substance Regulations (ESR) or the Foreign Exchange Management Act (FEMA). Reputation damage from prolonged disputes can also hinder future business development and investor confidence.
How MNCs Can Stay Ahead of Litigation
MNCs must adopt a proactive approach to tax compliance and litigation readiness. The first step is conducting Annual Tax Health Checks to identify any areas of risk in the company’s tax filings, documentation, and internal processes. Companies should also ensure that Transfer Pricing studies are up-to-date, BEPS reports are properly filed, and all TDS filings are accurate and timely. With increasingly stringent documentation requirements, it is essential that all international payments are well-supported with necessary documentation such as 15CA/CB certificates.
In addition, companies should explore compliance outsourcing solutions. Given the complexity of India’s tax and regulatory framework, outsourcing compliance services for GST, MCA filings, RBI filings, and tax returns to specialized firms can ensure that MNCs stay ahead of evolving regulations. By automating tax processes and keeping records in order, businesses can avoid the risk of human error, which is often a primary cause of tax litigation.
Finally, MNCs should be prepared for escalation. If disputes arise, having a solid Dispute Resolution Process (DRP) and ready representation at ITAT or the High Court is crucial. Companies must maintain a robust litigation strategy, backed by comprehensive documentation, to defend against any tax demands.
How KNM India Can Help
At KNM India, we offer corporate advisory services in India that specifically address the needs of multinational companies navigating India’s complex tax and regulatory environment. Our expertise includes:
- Entity Structuring: We help MNCs set up tax-efficient structures for their India operations.
- Compliance Outsourcing: We manage tax filings, TDS returns, GST filings, and more, ensuring you stay compliant.
- Tax Risk Advisory: We provide litigation-readiness audits to ensure all aspects of your tax filings are defensible.
- Legal Representation: Our team represents clients at DRP, ITAT, and other tax tribunals to minimize litigation impact.
- Language Expertise: With support in multiple languages, including Japanese and English, we offer cross-border advisory to businesses entering India from global markets.
Case Studies: How We’ve Helped
| Client | Issue | KNM’s Role | Result |
| US-based Tech Company | Transfer pricing dispute | Transfer pricing review & tax dispute resolution | Reduced adjustment by ₹80L, minimized penalties |
| Japanese Manufacturer | TDS shortfall on royalty payments | TDS compliance & legal support | Reduced penalty by 75%, avoided major impact |
| UK Retailer | GST non-compliance | GST advisory & filing support | Rectified issue, avoided penalties |
| German Pharmaceutical Firm | Corporate tax filing discrepancy | Tax planning & audit support | Minimized tax liabilities through restructuring |
| Australian Mining Company | FEMA non-compliance | FEMA compliance support & advisory | Avoided penalties, smooth fund |
Conclusion: Managing Tax Compliance in India
India’s tax and compliance environment is increasingly complex, and as a result, MNCs must adopt a strategic, proactive approach to avoid costly litigation. By ensuring strong documentation, keeping track of regulatory changes, and utilizing compliance outsourcing, businesses can avoid many of the common pitfalls that lead to tax disputes.
If your business is navigating tax uncertainty in India, let KNM’s Corporate Advisory Services help you stay ahead—accurately, defensibly, and compliantly.
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