Tax Authorities Mull ‘Digital Tax’ On Foreign Internet Companies

Foreign internet companies such as Google, Facebook, Twitter, and Amazon may reportedly have to pay a 30-40% digital tax in India for the revenue they generate from the country.

Citing unnamed sources, a media report has said that the Central Board of Direct Taxes (CBDT) has drafted a proposal under a new concept named “significant economic presence”, also known as digital permanent establishment (PE).

The term PE was first proposed during the 2018 budget with the view to bring the digital economy (wherein businesses can run without any physical presence in a country) into the tax ambit.

The draft rules mandate that companies with more than 200K users will have to pay taxes on the basis of the revenue generated from the Indians who have been using its social media platforms, search engines or market places.

According to reports, the tax proposal has been shared with nearly 180 countries and 70% of them have already supported the guidelines. This move is in line with the current tax system which under which foreign companies with their branches in India are mandated to pay 40% tax to the Indian government.

The draft has however received criticism from the companies as some of them work through their Indian arms or subsidiaries. These companies might have to change their entire holding structures to comply with the new tax law.

The report which cited official sources, said that the final guidelines will be announced after analysing the tax treaties and action plans under base erosion and profit shifting.

“Digital tax globally is an evolving topic and country specific rules are awaited. At present, there is no clarity on such digital taxation rules. Amazon is committed to be compliant with all the relevant laws,” Amazon spokesperson told Inc42  on the matter.

This development came in after the reports in January suggested that the central government may introduce digital tax rules for the global internet companies during the interim budget announced on February 1, 2019.

In February 2018, reports suggested Finance Ministry’s new 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.

Global internet companies are already facing tough time in the country owing to India’s data privacy and localisation policies. Under the data localisation policy, the Reserve Bank of India has mandated all the foreign internet companies to store user data of Indians in the local servers.

[The development was reported by Business Standard]