In what comes as a shocking update, the most widely-known health care startup of India, Practo is currently being investigated by the Department of Income Tax for its alleged tax evasion practices. It is believed that the Bengaluru-based company evaded its tax liabilities through a cross-border corporate restructuring.
According to the documents spotted first by Nikkei Asian Review, the Indian income tax authorities raided and searched through Practo’s headquarters for evidence to clear out doubts over the company’s valuation. They seized the company’s financial records, where they discovered multiple valuation reports that were conducted by two different Bengaluru accounting firms back in 2014.
As per the regulatory filings, Practo hired the services of some local accounting firm to conduct an independent valuation of their intellectual property in August 2014. It placed the value of the company’s prominent assets, including its online platform, domain name, software codes, and trademarks at $600,000 (approx. ₹4 crore). This is also the valuation that was assumed to conduct the sale of these assets to the company’s offshore affiliate in Singapore
The aforementioned valuation is extremely low as compared to $71.5 million (approx. ₹42 crore), at which it was valued at — just a month before the sale of its assets to the Singapore entity. The same, however didn’t immediately tick off the income tax authorities since shifting the assets to the Southeast Asian country was a common practice for startups. Indian charges a corporate tax of 34.6 percent, whereas corporate tax rate in Singapore is just half — 17 percent.
But the company’s massive $90 million fundraising round, which was completed at a monstrous valuation of $500 million about a year later, signalled them of the alleged discrepancies. This round involved participation from marquee investors including China’s Tencent, Sofina, Sequoia Capital, Altimeter Capital, Matrix Partners India and Google parent Alphabet’s CapitalG.
With regards to the same, the Department of Income Tax has been forced to further probe into the company’s financial practices. It has summoned two Practo executives to come forth and explain the ‘wide discrepancies’ in their financial records, which quote two very different valuations within the period of just one month in 2014. And they also need to explain the humongous jump in Practo’s valuation when it raised fresh funds in 2015.
Practo is presently the largest health care startup of the country. It recently unveiled a completely brand new entity and has raised close to $179.5 million to date. Operational in India, as well as 14 other countries, Practo’s health care platform helps its user base locate doctors, book appointments and medical tests, as well as order medicines. It has partnered with close to 200,000 health care providers, handling 50 million appointments until date.
We’ve contacted Practo to learn more about this investigation and will update you once we hear back from them.