India Questions OECD Proposal To Tax Global Digital Companies

India has flagged concerns regarding the Organisation for Economic Cooperation and Development’s (OECD’s) proposed plan for taxing multinational companies (MNCs), including global digital behemoths such as Google, Facebook, Uber, Amazon, Netflix among others, highlighting that as per the latest proposal the country would not get proper share of taxes from these tech giants.

Many cyber experts are of the view that India has a huge consumer base for international internet businesses and these companies should be brought under the ambit of local taxes to shell out taxes they have been evading for years. Plus, China, France and Germany have raised levies on internet companies but India has not shown courage to tax these titans despite being the biggest market.

A leading business daily quoted an unnamed government familiar with the development as saying, “We want a fair share in revenues that accrue to the company from the country”. Last month, the OECD issued a draft on taxing multinational companies for public comment. Talks on the recommendations are slated to be held on November 21-22. There has to be a unanimous view among all countries for the rules to be enforced.

India has proposed a more practical procedure for imposing taxes on these companies taking into account their place of revenue generation.

There is merit or logic in the argument that the right to tax big internet companies along with the significant economic presence (SEP) likely to impact several tech giants operating in India as they will have to pay more tax. As of now, India has not decided the quantum of tax. The finance ministry, in Union Budget 2018, had introduced the concept of ‘SEP’ in tax laws.

In June 2016, the government had imposed a 6 percent equalisation tax on digital online advertising in India. Under this, the tax is withheld by companies making payments to these digital service providers.

The Paris-based international organisation’s proposal will mean India getting little revenue despite the large digital and business presence of companies because only “residual profit” will be distributed among the countries where a company has its markets, the official told the financial daily.

The government believes that these big tech companies get large revenues from countries such as India because of their digital presence, without having a physical one, and has questioned the distinction between two types of profits, “routine profit” — which accumulate due to physical presence — and “residual” profit.

“We cannot back this formulation,” the official told the daily, elucidating with an example that if an app-based aggregator operating has its core technology base in one country and software base in another but earns money in countries such as India. The latter will only get a meagre part of the profit under the OECD plan, the government argues.

Vikas Vasal, national leader tax, Grant Thornton in India, told the daily: “Requirements of both developed and developing nations should be kept in mind, while arriving at a unified approach to ensure that divergent interests are adequately aligned and protected.”―Times Now