Exclusive-UK’s Aviva conspired to avoid compensation and tax rules in India, By Reuters agency says

By Aditya Kalra and Nikunj Ohri

NEW DELHI (Reuters) – An Indian tax agency found that the British insurer Aviva (LON: ) violated local regulations that limit sales agents’ commissions with a scheme of false invoices and clandestine cash payments, according to a notice seen by Reuters.

In a bid to grow operations, Aviva’s India business paid about $26 million between 2017 and 2023 to entities that allegedly provided marketing and training services, according to the tax notice sent to Aviva on August 3.

But the vendors, who did not execute any work, were actually a front to funnel funds to Aviva agents, said the Directorate General of GST Intelligence, which is responsible for checking indirect tax violations.

“Aviva and its officials engaged in a deep-rooted conspiracy and used the mode of false invoices (without receipt of services) to transfer certain monies to … Aviva’s insurance distributors,” investigators wrote in the announcement.

Details of the notice, which are not public, are being reported by Reuters for the first time. Such “show cause” notices typically ask companies to explain why the authorities should not issue sanctions for their alleged acts.

The case is part of a larger investigation into more than a dozen Indian insurers for allegedly evading $610 million in unpaid taxes, interest and penalties. The approximately $26 million in false invoices were improperly used by Aviva to claim tax credits and evade $5.2 million in taxes, the notice claimed.

In response to questions from Reuters, a spokesman for Aviva in the UK said: “We do not comment on speculation or ongoing legal matters.”

Its operations in India did not respond to queries. A person familiar with the matter told Reuters the company plans to deny the notice’s allegations, but has yet to respond.

The 205-page report included screenshots of emails and WhatsApp messages between Aviva executives and insurance distributors in which they discussed ways to avoid compensation regulations. It also contained summaries of interviews conducted by tax officials with executives such as Aviva India CFO Sonali Athalye, who described how the payments were made.

At the time, Aviva India chief executive Trevor Bull was quoted in a 2019 email discussing payments above regulatory limits, indicating “Aviva’s senior management is also aware of this thing,” the investigators wrote.

Bull and Athalye, as well as the Indian tax and insurance authorities, did not respond to requests for comment.

The company faces penalties of about $11 million, which is roughly its 2023 profit from selling life insurance in India.

“OVER RIDE COMMISSION”

Aviva’s business in India is run in joint venture with Dabur Invest Corp., a prominent local firm. Aviva owns 74% of the business, having increased its stake from 49% in 2022.

Dabur did not respond to questions from Reuters.

India is a relatively small market for Aviva, which reported a global operating profit of nearly $2 billion in 2023. It faces intense competition from companies such as state-run LIC, which controls about two-thirds of the market.

However, Aviva, which sells individual life insurance products and corporate plans in India, sees the world’s most populous nation as a growth market.

Data from India’s insurance regulator shows that life insurance premiums were equivalent to 3% of the country’s GDP. The equivalent ratio in the UK is 8.1%.

Aviva’s tactics were an effort to “grab more business and market share,” the investigators wrote.

India’s insurance regulator relaxed long-standing commission caps in 2023, but previously capped commissions on new policies at between 7.5% and 40%, depending on the product. Renewal fees were even lower.

In emails recovered by investigators, Aviva officials described the payment of commissions above regulatory limits as “ORC,” which CFO Athalye told tax investigators last year stood for “Over Ride Commission” and was “used in interchangeably with terms such as marketing and sales promotion expenditure’.

The sellers who generated the fake invoices received about a 5 percent discount on the invoiced amount, according to investigators.

An Aviva email from November 2022 showed the company paid a 17% commission under an insurance distributor’s rules, but “committed” to a total payment of 75% “from records by picking up invoices from insurance providers. marketing and advertising”.

The email showed an Aviva executive requesting approval for ORC payments, with a table listing numbers for business generated, commission already paid and pending ORC.

Another executive replied: “Enclosed payments are approved.”

In a separate email from November 2022, an Aviva executive shared a spreadsheet detailing payments to a broker who generated $906,000 in business in one year and received official commission of $156,600, as well as ORC of $400,000.

MENTOR AGENTS, 10 RUPEE NOTE

Aviva also hired 559 people it called “agent mentors” to train salespeople.

But no such services were provided: instead, agent mentors issued false invoices to Aviva to facilitate overcharges to agents, according to the ad.

In at least one case, an agent and an agent mentor had family ties.

Arunachal Pradesh insurance agent Bymat Taloh told tax investigators in May that Aviva had advised his family to appoint a mentor agent. His sister, Aina Mimum Taloh, took over this role.

Aviva “suggested that, per company policy, an agent mentor is required for payment of an additional commission,” the ad said, citing Bymat’s testimony.

Aina “did not perform any activity for Aviva as an agent or mentor agent directly,” investigators wrote.

Reuters could not reach the brothers for comment.

Aviva officials also facilitated payments by taking photos of the 10-rupee bills and sending them to both sellers and insurance agents.

The insurance agents then approached the sellers with the photo of the bill to get their excess commissions in cash, investigators said.