Aviva India ordered to pay $7.5 million in tax evasion case

Indian authorities penalize Aviva India for tax evasion and illegal commission.

The Indian flag and Aviva logo in an illustration taken on August 29, 2024. Photo by Dado Ruvic/Reuters

By Nada Fadiyah and Alana Salsabila

Indian tax authorities have ordered British insurer Aviva’s local unit to pay $7.5 million in back taxes and penalties after an investigation found it used fake invoices to pay illegal commissions and claim incorrect tax credits. The ruling is a significant blow to Aviva India, which recorded a profit of just $10 million in the 2023-24 financial year and faces intense competition in the country’s insurance market.

According to an August 3 notice reported by Reuters last year, Aviva India allegedly funneled approximately $26 million to vendors between 2017 and 2023 under the guise of marketing services. However, authorities claim these vendors were merely fronts used to funnel excess commissions to Aviva’s agents, bypassing regulatory limits.

Authorities uncover tax fraud scheme

The tax authorities allege that Aviva India engaged in a system of fraudulent invoicing and cash transactions to claim tax credits improperly, resulting in $5.2 million in tax evasion. After reviewing the company’s defense, joint tax commissioner Aditya Singh Yadav ruled that Aviva had evaded around 326 million rupees ($3.8 million) in taxes. The company must now pay that amount along with a 100% penalty, bringing the total to 653 million rupees ($7.5 million).

"The vendors were just puppets playing their role for Aviva to get them undue benefit of bogus tax credits," the ruling stated. It further added that these vendors were selected as "face masks" to disguise the insurer’s tax evasion scheme.

Aviva denies wrongdoing, plans to appeal

Aviva India, which operates as a joint venture with Dabur Invest Corp., denied any wrongdoing and stated it would appeal the ruling. "The order will have no impact on its operations," the company told Reuters.

Dabur, which owns 26% of the venture after Aviva increased its stake from 49% to 74% in 2022, has not commented on the matter.

In its defense before tax authorities, Aviva argued that the allegations were "incorrect and unsustainable" and maintained that the vendors in question had provided legitimate services. However, the February 5 order, reviewed by Reuters, contradicted this claim, citing internal emails and messages between Aviva executives and insurance distributors discussing ways to bypass compensation regulations through fraudulent invoices.

Investigation reveals long-running scheme

The investigation found that Aviva also hired so-called "agent mentors" to train sales agents. However, authorities claim these mentors did little to no training and instead issued fake invoices to facilitate excess commissions.

A Reuters report from December 2023 revealed that Aviva’s tax evasion model, used to pay agents unlawful commissions from 2017 to 2023, was first implemented internally in 2013 and was approved in writing by senior executives at Aviva India.

Growing scrutiny on India’s insurance sector

The ruling against Aviva India underscores the growing scrutiny on tax compliance and regulatory adherence in India’s insurance industry. Authorities have been cracking down on companies engaging in fraudulent practices to gain a competitive edge.

With Aviva now facing a $7.5 million penalty, industry experts believe the case could have broader implications for how multinational insurers operate in India. If Aviva’s appeal is unsuccessful, it may prompt further investigations into similar practices by other firms.

For now, Aviva India must navigate both financial and reputational damage as it seeks to overturn the ruling while maintaining its foothold in India’s highly competitive insurance market.