Regulatory and legal crackdowns have forced the company to skirt “regulations and/or avoiding taxes through uncreative loopholes which we believe will be inevitably cut-off,”
said in the report published Wednesday.
India is the biggest market for Sequoia-backed Truecaller, which saw sales grow 133% in the January-June period with 235.5 million monthly active users (MAU) and 194.4 million daily active users.
India contributes almost 80% of Truecaller’s revenue and over 70% of daily active users, while 63% of its workforce is based in the country.
The large cap stock hit a 52-week low of 40.44 Swedish Kroner (SEK), down 22.27%, on the Nasdaq Stockholm exchange.
Truecaller is a software company which offers a global platform for verifying contacts and blocking unwanted communication and calls. In some markets it has also launched financial services for businesses.
TAX MAN COMETH?
Viceroy said Truecaller’s Indian arm, “Truecaller International LLP”, has emphasised in its audit report for 2021 that the management is “seeking approvals” and “taking steps thereof” under the Reserve Bank of India’s guidelines for transfer pricing and GST (VAT).
“Reading between the lines, Viceroy believes Truecaller is under investigation for tax fraud in India,” it said.
“When the taxman comes knocking, Truecaller is a loud and proud Swedish company. Truecaller bills almost exclusively from Sweden from advertising customers/agents despite substantially all operations being in India. When regulators come knocking, Truecaller is an Indian company ostensibly to avoid privacy regulations such as GDPR. Despite this, GDPR specialists consulted by Viceroy confirmed that they are in breach of these regulations and are subject to GDPR regardless of their claimed domiciliation and users’ and non-users’ location,” it said.
India’s own data protection bill is in draft form and is expected to be published for consultation shortly.
Viceroy’s analysts expect that regulations, if passed, would pose similar problems for Truecaller as GDPR.
Truecaller already has been subject to two public interest litigations in India. One is ongoing in the Bombay High Court.
Truecaller reported a loss in India for the financial year ended March 2021 despite posting large consolidated profits for the same period and reportedly paid no income tax in India in the most recent financial year.
“India’s effective corporate tax rates (~29%) are substantially higher than Sweden’s (20.6%). India also enacts a dividend withholding tax of 20% for foreign investors,” according to the report.
Truecaller said it did not wish to comment on the report.
OEMS BLOCK THE WAY
Several geographies including the EEA, Nigeria, Brazil and South Africa have prevented Truecaller from collecting user address books from apps installed through the Google and Apple app stores.
Truecaller must now rely on more expensive preinstalled copies of the app to increase their footprint, Viceroy said.
The Swedish company also faces competition from Original Equipment Manufacturers.
For example, Google’s Android operating system now comes with caller ID and spam protection as standard on most compatible Android devices. These are inbuilt on the Google dialler which comes as the pre-set dialler application for most Android devices.
Chinese phone makers Xiaomi, Vivo, Realme and Oppo phones all come with Google diallers pre-installed.
Truecaller has attempted to work around this through preloading the app on phones but only has a 50% activation rate.
Samsung’s dialler, which comes as the pre-set dialler for its phones, also has the Smart Call caller ID and spam protection with the option to activate Hiya, a Truecaller competitor service, for further protection.
Originally rolled out in North America and Europe, the feature is now available in India as well.
Apple OS has also effectively locked Truecaller and other third parties out of the access system.
India’s telecom industry regulator Trai has also announced its intention to create a Truecaller-like app backed by government-issued identity documents which will also impact Trucaller’s growth prospects. The consultation paper is due next month.
“The Draft Indian Telecommunication Bill section on caller identification reads like a Truecaller design brief, except using the national ID system and without ads. It also lists spam as an arrestable offence. Truecaller has claimed in various press pieces that government regulation has not impacted their business in other geographies. This is because Truecaller has minute business in geographies with spam filters,” Viceroy said.
Likewise, over-the-top services such as WhatsApp, are posing a greater threat to Truecaller, Viceroy said, through offering an alternative spam-free communication channel.
Call blocking is set on by default unless a user has the caller registered as a contact.
Former employees expressed a view that it would be impossible for Truecaller to supplant WhatsApp in India, or for the government to restrict WhatsApp.
India is also the world’s largest WhatsApp market by far, with 487 million users.
Viceroy Research LLC is an international investigative financial research group registered in Delaware, United States. It was founded by a British short seller Fraser John Perring together with Australian partners Aiden Lau and Gabriel Bernarde in 2016. Perring and Viceroy have stirred considerable media interested because of their reports on firms like Wirecard which they accused of nonexisting accounts. Of late, Viceroy has been known to bet against companies like Tesla and Grenke.