NEW DELHI: India has sought changes in the Organisation for Economic Cooperation and Development (OECD) proposal on digital taxation, saying it would deny the country its proper share of taxes from multinationals such as Google, Facebook, Uber and Netflix, which generate substantial revenues locally.
The government has proposed a more balanced principle for the taxation of such companies based on place of revenue generation.
“We want a fair share in revenues that accrue to the company from the country,” said a government official aware of the development. India has submitted its concerns to the body. The OECD had on October 9 released a draft on taxing digital companies for public comment. Discussions on the proposal are to be held on November 21-22. All countries have to agree for the rules to be enforced.
India imposed a 6% equalisation levy on online advertising in 2016. Under this, the levy is withheld by the recipient of services from the payment it’s making for services.
The proposed OECD formulation will mean India getting little revenue despite the large digital and business presence of companies, the official said. This is because only “residual profit” will be apportioned among the countries where a company has its markets. The government is of the view that multinational companies derive large revenues from countries such as India via their digital presence, without having a physical one, and has questioned the distinction between “routine profit”— which accrue due to physical presence — and “residual” profit.
“We cannot back this formulation,” the official said. For example, a cab aggregator operating via a mobile app has its core technology base in one country and software base in another but makes money in countries such as India.
Size of Business
The latter will only get a small part of the profit under the OECD proposal, the government argues. There is also the matter of how the size of business will be determined — using employees, assets or sales.
The Indian method focuses on revenue, wherein income is apportioned to each jurisdiction in line with operations there, which the official said would be fair to everyone and simpler to operate.
On the other hand, in the case of outbound business from India — IT and software companies that export their services and products to developed markets, for instance — it is possible that residual profits will be attributed to markets there, thereby reducing taxable profits in the home country. There are also questions about the kind of businesses that will be covered, the official said.
Companies basing themselves in low-tax jurisdictions for tax avoidance is referred to as base erosion and profit shifting (BEPS). The term Google tax refers to measures aimed at combating this and ensuring that companies pay what they owe in line with revenue generated locally.
“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,” said Vikas Vasal, national leader tax, Grant Thornton in India.
“Consensus will be driven by how these formulae reallocate the non-routine profit to the market countries,” said Rohinton Sidhwa, partner, Deloitte India.
Source : Financial Express