Google, Facebook may be asked to pay tax on profits made in India

BENGALURU: The government is looking to set a revenue threshold of Rs 20 crore and a limit of 500,000 users above which non-resident technology companies such as Google, Facebook and Twitter will have to pay direct taxes on profits earned locally, multiple sources in the know of the matter said.These limits are part of the ‘Significant Economic Presence’ (SEP) concept that was introduced in the budget last year.ET has learnt that the government is also considering if the SEP could be made a part of the draft Direct Taxes Code, which seeks to consolidate laws relating to direct taxes. The draft is expected to be submitted to the finance ministry soon.Multinational tech companies have been accused of paying very little taxes locally despite earning significant revenue and profits from offering services such as online advertising to customers in India. 70458383 It also comes at a time when lawmakers globally, especially in the European Union, are looking at ways to tax Big Tech on profits and revenue generated locally.Google, Facebook and Twitter did not respond to ET’s queries on the subject till press time.Global corporations with more than 1 million registered users in India, or those with over 100 paying customers, or ones earning revenue of over Rs 10 crore from customers in India should invoice locally, community feedback platform LocalCircles said in a letter to revenue secretary Ajay Bhushan Pandey on Monday.ET has reviewed a copy of the letter.The CBDT had in a notification in July 2018 asked for suggestions to frame rules related to SEP, but the government has not yet finalised it.A sense of urgency, however, has crept in after finance minister Nirmala Sitharaman urged G20 members last month to fix the issue of taxation of profits made by digital companies.Move to Create Level Playing FieldWhile India is backing the concept of SEP, the EU has indicated that it could levy a tax of 3% on digital revenues generated in the source country. France has, however, announced its own rules to tax digital companies.“There is a substantial ambiguity at the international level and getting multiple countries to agree on a uniform protocol to tax digital companies is easier said than done. However, this fluid situation may offer India the opportunity to renegotiate some of the treaties and international trade agreements,” said Salman Waris, managing partner at TechLegis Advocates and Solicitors, a Delhi-based specialist law firm.SEP will end up taxing overseas digital companies on par with local firms, at around 35%, the current peak corporate tax rate. “This will not only boost the exchequer at a time when revenue collection is falling, but also create a level playing field between local and global companies,” an expert tracking the sector said.ET reported in November that Google had remitted over $2 billion between fiscal years 2014-2018 to the US-based search giant’s subsidiaries in Singapore and Ireland. The remittances, classified as costs for “purchase of advertising space”, amounted to 50-60% of its overall revenue in India over the period.Tax authorities had argued that these remittances were not cost, but royalties which can be taxed.In October 2017, the Income Tax Appellate Tribunal in Bengaluru ruled in favour of the tax department, but Google got an interim stay from the Karnataka High Court. The case is still ongoing. Firms like Google and Facebook have started billing users locally, but they do not report the entire transaction value as part of their India revenue. They only report a part of the transaction as commission, while the rest of the money is remitted to overseas entities as cost. India introduced an equalisation levy of 6% on such remittances, one of the highest in the world.

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