India’s Income Tax Department has accused British insurer Aviva of violating local regulations by implementing a scheme involving counterfeit invoices and unauthorised cash transactions to circumvent commission restrictions for sales agents, as per a news agency Reuters report.
The aforementioned discovery was brought to light by the Directorate General of GST Intelligence (DGGI), the entity accountable for overseeing violations related to Goods and Services Taxes and indirect taxes, Reuters reported. The notice revealed that Aviva incorrectly claimed tax credits on $26 million in fake invoices, leading to a tax evasion of $5.2 million.
Aviva India spent approximately $26 million between 2017 and 2023 on entities that were supposedly offering marketing and training services, as outlined in the tax notice dated August 3. However, investigations by the DGGI reveal that these vendors, despite claiming to provide services, did not actually carry out any work. Instead, they acted as intermediaries to funnel funds to Aviva’s agents.
The DGGI notice to Aviva India on August 3 it was disclosed that the insurer’s operations in India disbursed around $26 million from 2017 to 2023 to entities ostensibly offering marketing and training services.
“Aviva and its officials have indulged in a deep-rooted conspiracy and used the modus of fake invoices (without receipt of services) to pass on certain money to … insurance distributors of Aviva,” investigators wrote in the notice.
Details of the notice, which is not public, are reported by Reuters for the first time. Such “show cause” notices typically require companies to explain why authorities should not issue penalties for their alleged acts.
Such “show cause” notices usually require companies to explain why authorities should not impose penalties for their actions.
This case is part of a broader investigation involving over a dozen Indian insurers for allegedly evading $610 million in unpaid taxes, interest, and penalties. Aviva is yet to issue a statement in thsi regard.
DGGI’s notice
The tax agency’s extensive 205-page report documented communications such as emails and WhatsApp messages between Aviva executives and insurance distributors.
These exchanges detailed strategies to evade compensation regulations. The report also outlined interviews conducted by tax officials, including one with Aviva India’s Chief Financial Officer, Sonali Athalye, who elaborated on the payment procedures.
Notably, a crucial discovery was an email from 2019 in which Trevor Bull, the former CEO of Aviva India, was included. This email discussed surpassing regulatory thresholds for payments, implying that senior management was cognizant of these actions. Despite requests for comments, both Bull and Athalye, in addition to Indian tax and insurance authorities, remained unresponsive.
The tax notice sent to Aviva indicated that the company could potentially incur penalties totaling approximately $11 million. This amount is equal to the profit generated by Aviva from life insurance sales in India for the year 2023.
Aviva India’s business
Aviva is operating in India through a strategic joint venture with Dabur Invest Corp. Aviva currently holds a majority ownership of 74% in this venture, an increase from its initial stake of 49% established in 2022. Despite India being a comparatively smaller market for Aviva, the company views it as a promising growth market due to the country’s significant population size, being recognized as the most populous nation globally.
The life insurance industry in India, though competitive, contributes a smaller percentage to the national GDP when compared to the United Kingdom. According to data provided by India’s insurance regulatory authority, life insurance premiums constitute 3% of the country’s GDP, whereas the corresponding figure in the UK stands at 8.1%.
The tax notice suggested that Aviva’s actions were part of a broader strategy to increase its market share in this challenging environment. The emails recovered during the investigation revealed that Aviva officials referred to commissions paid over regulatory limits as “ORC,” or “Over Ride Commission.” CFO Athalye confirmed this term during an interview with tax investigators last year, stating it was often used interchangeably with “marketing and sales promotion expenses.”
Investigators found that vendors who generated fake invoices for Aviva were given a cut of about 5% of the amount billed. One email from November 2022 showed that while Aviva paid a commission of 17% to one insurance distributor, as per the rules, it had committed to a total payout of 75% by raising invoices from marketing and advertisement vendors.