BBC Tax controversy EXPOSED | Transfer Pricing Explained | BBC Documentary | Pavan Sathiraju

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The first allegation against BBC is regarding the tax issues related to transfer pricing. What is transfer pricing? First, we need to know that BBC India and BBC UK are two separate entities. If BBC India is making ₹100 worth of revenue in India while BBC UK is providing all the training and technical support, BBC India transfers that ₹100 to BBC UK. Because of this BBC India earns no profit and pays no taxes in India. The tax rate in India is 37-40% and in the UK it is 23%. Because of this BBC saves up to 14% in corporate taxes by paying taxes in the UK and not in India. Now the entire BBC income tax raid news has brought these issues into the limelight.

According to the principle of arms-length pricing, the two entities engaged in a transaction should not be related to one another at all. Otherwise, the pricing should be based on a fair pricing mechanism. But in case the two parties doing the transaction know each other the principle of fair value is compromised and there can be ulterior motives behind the deals made between two acquainted individuals or entities. The BBC tax raid India has been sparking controversy for this very reason.

If one does engage in a trade with other people by compromising the fair price then it is likely that they are not following the arm’s length principle. BBC raid in India is garnering differing opinions from all walks of politics and media. BBC tax controversy is said to be an impact of BBC documentary on Narendra Modi in early January while others are criticising BBC for its biased reporting on Indian issues. The BBC income tax raid has been said to be a result of this.

This is what the entire allegation against BBC India is all about. Indian Government’s stand is that BBC is showing inflated prices for the services offered by BBC UK. Has BBC committed this tax fraud? To understand this we need to look into BBC’s revenue model. The theory of BBC tax evasion India doesn’t seem very logical if we look into this. 75% of BBC’s revenues come from licensing fees. Licensing fees are the fees paid to every individual who has a TV connection in the UK to the BBC which amounts to £150. This is because BBC is a publicly funded company.

Microsoft and Google had to pay $147 Million and $500 Million to the US and French governments respectively for similar allegations. Transfer pricing is common in the case of corporations trying to maximize profits. But in the case of BBC, the maximization of profit is not their primary aim. They are a public-funded company and its objective is to deliver unbiased information. Based on this information my opinion on the BBC tax controversy is pretty clear. You can share your opinion with me in the comments.

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Chapters

0:00 - Intro
0:24 - Pointers
0:52 - Allegations on BBC
2:16 - Arm's length pricing
4:10 - BBC Business Model
6:11 - Has BBC committed this tax fraud?
6:55 - BBC Documentary on PM Modi
7:34 - Outro

[mohammedaliuddinsaif]

H Pavan, I do not understand that why BBC India would inflate cost and pass it to BBC UK, will it not cause them to pay more tax on this inflated revenue?

[Student_of_management]

Hi Pavan sir, from the last one month, I am following your channel for my IIM's interview.
Thank you so much for this high quality content.
It means a lot to me.

[shashikumar]

Very Nice analysis. Would you be able to help us understand if there is any mechanism to understand revenue by MNCs operating in India. For example how much does Google pay to India govt as taxes and are their India books audited ?

[kousik]

Opinion vs Informed opinion vs Speculation vs These on on🤔

[pilfee]

BBC, S origins itself is from the church and when the missionaries are getting exposed in india, we can understand the way BBC would

[seshanvishwanathan]

Lot many things inside the BBC you are not aware of, they have companies like BBC studios which make profit and revenues. How does a foreign broadcaster broadcast news from India, how they publish online content on various platforms and make revenue. BBC is loosing the ground because they are now questioned by the Govt.

[monojdas-gupta]

It is not at all understood how BBC generates an income/profit of Rs 100/-to start with in India? Selling what? Their only business in India is to dispense news.They are not allowed whether in England or in India to take any advertisements. The very starting point of the issue seems to me deeply flawed.