More foreign firms to come under ‘Google Tax’

New Delhi: The Centre’s clarification on the scope of the equalisation levy on digital transactions, provided in the union budget on Monday, will bring more foreign entities selling goods and services to either businesses or consumers through online platforms under the ambit of the tax, legal and industry experts told ET.Previously, the 2% levy was being paid by global internet services companies such as Google, Netflix and Adobe. But there was still a lot of ambiguity over the scope of the tax that allowed several overseas firms to remain outside the tax net. "There are many such entities from across the world not having any presence in India, for instance e-commerce portals in retail, travel, hospitality that will (now) have to pay the 2% levy on the gross value," said Rameesh Kailasam, chief executive officer of the think-tank Indiatech.org. “The government's clarification finally closes the gaps left in drafting the original provision last year." Several overseas entities that were selling online to Indian consumers have until now remained out of the ambit of the levy by arguing that they either do not have Indian operations or that they earn no commission on the sales.‘Level Playing Field’Now, with the government clearly spelling out the scope of the controversial levy — widely referred to as Google Tax — any kind of cross-border transaction with foreign entities will be liable to be taxed. “This will provide a level playing field to Indian businesses that pay a much higher tax in the form of GST and other levies compared to businesses that operate from abroad,” Kailasam said.ET had earlier reported that tech giants such as Google, Netflix and Adobe have paid the 2% additional equalisation levy on digital transactions and that India had earned close to ₹400 crore from the levy until October 2020. Other large companies that are also supposed to be covered by the tax include Facebook, LinkedIn, Ebay and Uber. However, many businesses did not pay the levy, citing lack of clarity."Foreign companies will have to solve for equalisation levy even if there are a few purchases from India. It may mean that some foreign online businesses may completely stop selling in India to save on the compliance hassle," said Pratibha Jain, a partner at legal firm Nishith Desai & Associates.The levy has been termed as “unreasonable or discriminatory” by the US Trade Representative (USTR) last month alleging that it burdens American commerce. The US has also initiated investigations into 10 nations and blocs, including India, that have imposed such digital services taxes. The USTR report identified 119 companies that are likely to be liable under the tax, out of which 72% are American companies.Jain is of the view that the Indian government has shown its intention by clarifying that "this levy is here to stay despite the push back". Even inter-company cross-border transactions will now be covered by this levy. The Finance Bill of the Union Budget 2021-22 clarified that "online sale of goods" and "online provision of services" on which the levy is applicable since April 2020 includes (a) acceptance of offer for sale; or (b) placing of purchase order; or (c) acceptance of the purchase order; or (d) payment of consideration; or (e) supply of goods or provision of services, partly or wholly’.It also made clear that any income which is chargeable to tax as royalty or fees for technical services in India will not be covered under the levy.

from Economic Times https://ift.tt/3cvvv1U