“We have issued showcause notice as the company has not paid service tax on the underwriting commission paid by Infosys towards American Depository Receipt (ADR) for the years 2003, 2005 and 2006,” said a senior tax official from service tax department.
The service tax commissionerate in Bangalore issued showcause notice to the company on October 24, 2008, he said.
By sponsoring ADRs in the overseas markets, the company aimed at increasing foreign share holding in the firm.
However, the company in this regard has said the notice is not a determination of any liability and that the company has time till the first week of February to reply.
“We strongly believe that since it is a sponsored ADR program, the company had not taken any taxable services and only facilitated the issue. The services were basically taken by the selling shareholders. We will be replying in detail to the authorities in due course,” Infosys Technologies Chief Financial Officer Balakrishnan V told.
Companies which sponsor ADRs do it with an intention of increasing the liquidity of its foreign-listed stocks. The move is also aimed at increasing market capital in these foreign bourses, getting the stocks to be covered by global analysts and held by well-known, long-term investors.
