Govt Might Apply Direct Taxes On Global Cos Like Facebook, Amazon: Report

Indian government is reportedly looking to levy direct taxes on foreign technology companies who earn more than INR 20 Cr in revenue and has over 500K users from India. This would mean that major tech companies such as Google, Facebook, Amazon and Twitter will have to pay taxes on their profits earned locally. 

This is said to be part of the Significant Economic Presence (SEP) concept drafted by the Central Board of Direct Taxes (CBDT) in February. According to a media report, the government is considering to make SEP a part of the draft Direct Taxes Code which will reportedly consolidate all laws related to direct taxes in the country. The draft code is expected to be submitted to the ministry of finance soon. 

Under SEP concept, which is also known as digital permanent establishment (PE), foreign companies will reportedly have to pay a 30-40% digital tax in India for the revenue they generate from the country. Further, the draft had proposed that companies with more than 200K users will have to pay taxes on the basis of the revenue generated from India.

The draft rules had, however, received criticism from the companies who work through their Indian arms or subsidiaries. The common criticism is that companies will have to change their entire holding structures to comply with the new tax regime.

Recently in June, the finance ministers from the G20 nations have also concluded that their economies will have to find a common way to tax technology giants, whose digital business models have developed faster than the taxation systems that attempt to regulate them.

Last year, the Finance Ministry’s proposal under the base erosion and profit shifting (BEPS) treaty had also said that digital companies with high popularity in India should pay taxes even if they are not physically located in the country.

Govt Efforts To Regulate International Companies

Apart from tax, India government has also been mulling over multiple policy changes such as Intermediary Guidelines Amendments and Draft Data Protection Bill, to regulate the operation of foreign companies in India. 

Draft Intermediary guidelines which are said to be finalised soon by the Ministry of Electronics and Information Technology (MeitY) had proposed that the intermediaries with more than 50 lakh users in India should be incorporated under Indian law and have a permanent registered office in India, along with a India-based nodal officer. 

According to Information Technology(IT) Act 2000, the term ‘Intermediary’ includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-marketplaces and cyber cafes. 

Further, Indian government has also been mulling over a data protection bill for the last one year. The Draft Personal Data Protection Bill 2018 had proposed a data localisation mandate in the bill. It also proposed that one copy of all personal data to which the law applies are to be kept in a server within India. 

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