A joint venture between Rishi Sunak’s billionaire in-laws and the internet retailing giant Amazon is in a multimillion-pound dispute with the Indian tax authorities, a Guardian investigation has found. The disclosure adds to the list of legal battles currently involving the joint venture, following news on Friday that India’s competition commission has been given permission to relaunch an investigation into Amazon. Small traders claim they are being squeezed out of business by the multinational’s selling practices and that the US retailer’s £1bn-a-year venture with the chancellor’s father-in-law, the technology entrepreneur NR Narayana Murthy, could be bypassing Indian foreign ownership rules. Amazon says it is operating in full compliance with local laws. The emergence of the tax case follows last week’s G7 discussions, when the finance ministers of the world’s largest economies agreed a global deal designed to make tech companies pay more tax. In India, foreign companies are banned from running an online retailer that holds inventory and then sells the goods directly to Indian consumers online. So, instead, the Amazon.in website is run as a “marketplace”, with Indian retailers selling their products via the site in return for a fee to the US giant. One of the largest sellers on Amazon.in is a company called Cloudtail, a business indirectly 76%-owned by an investment firm controlled by the Murthy family. The remaining quarter of Cloudtail is indirectly owned by Amazon. An analysis of the company’s accounts and activities by the Guardian shows that Cloudtail: faces a £5.5m demand – including “interest and penalties” – from India’s tax authorities has paid “meagre” taxes over the past four years, while using a business model described as Amazon “on steroids” has filled its top two posts – chief executive and finance director – with Amazon executives, while Cloudtail’s holding company, Prione, has also been run by former Amazon managers. Cloudtail’s most recent accounts state: “The company has received a show cause notice in the current year from Directorate General of Goods and Service Tax Intelligence amounting to INR 5,455 lakhs [£5.5m] along with interest and penalties for service tax-related matters.” It is not known precisely what the tax dispute is about. The company said it was contesting the bill, and added: “Since this matter is sub judice, we are unable to comment any further.” The annual report further reveals that Cloudtail – which only sells via the Amazon platform – paid Amazon fees of £95m last year, almost 10 times more than the Indian business reported in profit. An analysis of Cloudtail’s accounts conducted for the Guardian by the Fair Tax Foundation also found that “corporation tax contributions are meagre”, with £830,000 paid in tax per annum compared with £798m of revenue when averaged over the past four years. In its last financial year, Cloudtail paid around £3.4m in cash taxes on revenues of £1.1bn. Paul Monaghan, chief executive of the Fair Tax Foundation, added: “Cloudtail’s business model would seem to be the same as Amazon’s across the globe, but on steroids. We are seeing the usual rapid growth in revenue, but the profit margins are wafer-thin at 0.3% over the last four years – it’s practically being operated at cost. How on earth can anyone else compete locally, especially when Cloudtail is essentially a box for Amazon’s trillion-dollar machine?” Sunak is said to be the UK’s richest member of parliament, a wealth largely thought to be derived from the family of his wife, Akshata. Her father, Murthy, founded the tech services firm Infosys and is said to be worth $3.6bn by the US business magazine Forbes. Murthy also created the venture capital firm Catamaran, a trustee of the Hober Mallow Trust, which ultimately owns the stake in Cloudtail and whose beneficiaries are Sunak’s parents in-law, the company said. Rashmi Das, an author specialising in Indian e-commerce, said: “The whole structure raises questions if Cloudtail is really an asset of Amazon – and if the Murthys are the name lenders. The exact detail of the deal will only be known if the investigation agencies seek details of their shareholder agreements.” The Guardian understands that the shareholder agreements between Amazon and Catamaran give the US company the option of buying Cloudtail, if Indian foreign direct investment law changes​. The​ clause could land the Murthy family a huge windfall. The questions around the control of Cloudtail also prompted the Confederation of All India Traders (CAIT) to ask the minister of commerce in February to investigate the joint venture to discover why its key personnel have typically joined from Amazon. Former Amazon executives on the joint venture’s boards have included: Sandeep Varaganti, chief executive of Prione since April 2018; Rajesh Jindal, finance chief of Prione and Cloudtail from September 2018 to March 2021; Sumit Sahay, Cloudtail chief executive between February 2017 and April 2021; and Ranjit Babu, Cloudtail chief executive since April 2021. All previously held either director or senior manager positions at Amazon India, while both Jindal and Sahay left Cloudtail and Prione this spring to return to Amazon in new director roles, according to their LinkedIn profiles. In its letter to the ministry, CAIT said: “Even though Murthy holds the majority of shares, he has allowed the (so-called) former employees of Amazon on the driver’s seat of both Cloudtail and Prione … The role of Murthy requires appropriate investigation.” CAIT said it continues to press for the ministry to investigate, while Amazon also faces two potential inquiries by the Competition Commission of India (CCI). On Friday, the commission was given permission by a judge to relaunch an investigation into Amazon’s selling practices, which will include Cloudtail. Meanwhile, the CCI is considering whether a second complaint against Amazon and Cloudtail should be investigated. A spokeswoman for Prione, Cloudtail, Catamaran and the Murthys said: “Cloudtail has not violated any law and is in full compliance with the law of the land in letter and in spirit. The Murthy family has put in the required equity capital in Prione [parent company of Cloudtail], commensurate with its shareholding. The allegations are baseless and incorrect. “Cloudtail is an independent company that makes business decisions to protect its interests. Cloudtail is governed by a board of directors. Catamaran has [a] majority of the directors and therefore controls the board. The members on the board from Catamaran are high-quality professionals with extensive business experience. The details of the decisions and deliberations of the board of Cloudtail are minuted and available for inspection by the relevant Indian authorities.” A spokeswoman for Amazon said: “Amazon in India has always been fully compliant with all Indian laws. Specifically, our joint venture with Catamaran, as well as our marketplace operations, are in compliance with Indian [foreign direct investment] laws, and that includes Cloudtail as a seller.” A Treasury spokeswoman said: “Reaching an international agreement on how large digital companies are taxed has been a priority for the chancellor since he took office. “The chancellor’s consistent position has been that it matters where tax is paid, and any agreement must ensure digital businesses pay tax in the UK that reflects their economic activities. That is what our taxpayers would expect and is the right thing.”