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Compliance challenges, tax surprise and encryption concerns

Social media platforms, digital news publishers and streaming services have to up their due diligence and accountability game in India given the new, stringent provisions in the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 notified by the central government last week.

Under these new guidelines or rules, the standard is higher for internet platforms who have more than 50 lakh registered users as the new rules categorise them as a ‘significant social media intermediary’. Within the next three months, such platforms will have to appoint a resident as:

  • Chief Compliance Officer who will be responsible and liable for ensuring compliance with the Information Technology Act and rules.
  • Nodal Contact Person for 24×7 coordination with law enforcement agencies.
  • Resident Grievance Officer to address user complaints.

Such platforms will need to have a physical address in India. They’ll also have to publish a monthly compliance report mentioning the details of complaints received and action taken, as well as details of contents removed proactively.

Supratim Chakraborty, partner at Khaitan & Co. told BloombergQuint that the periodicity of publishing this report is impractical.

Besides onerous compliance, the rules could have unintended consequences when viewed from a tax lens.

The requirement of employing resident officers in India and having a physical office in India could amount to a business presence in the country and potentially lead to a tax liability, Dhruva Advisors’ partner Ajay Rotti told BloombergQuint.

An important tax issue that countries around the world have been grappling with is the concept of nexus, Rotti pointed out. Some of these new age companies have all along taken a position that they don’t have a presence in any country and thereby do not create a nexus for the purpose of tax, he explained.

Another big concern that the new rules have thrown up relates to encryption policies of messaging platforms.

The new guidelines say that if a messaging platform has more than 50 lakh registered users in India, it will have to enable identification of the first originator of the information for the purposes of

  • Prevention, detection, investigation, prosecution or punishment of an offence related to sovereignty and integrity of India, the security of the State, friendly relations with foreign States, or
  • Public order, or of incitement to an offence relating to the above, or in relation with rape, sexually explicit material or child sexual abuse material punishable with imprisonment for a term of not less than five years.

Raman Chima, Asia policy director at Access Now told BloombergQuint that this provision in the guidelines is ripe for a court challenge.

It will directly impact the fundamental rights to freedom of speech, expression, online association, and assembly with measures that would encourage over-censorship by web platforms, and harm secure communications by requiring encryption to be broken in order to ensure “traceability of communications”. Bloomberg

 

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