Foreign Digital Companies with India Presence May Have to Pay Tax

first_imgDigital companies that have a huge base of users and business in India may have to pay taxes in the country despite having their infrastructure located overseas, according to a new proposal in the Finance Bill. This means that large digital players like Google, Netflix, Facebook and popular mobile application services could be taxed by the Indian government, The Hindu reported.“It is further proposed to provide that the transactions or activities shall constitute significant economic presence in India, whether or not the non-resident has a residence or place of business in India or renders services in India,” the Finance Bill said. The amendment could come into effect from Apr. 1, 2019.The proposed rule will affect companies that sell goods or services in the country digitally, but do not have a physical entity in India. “There many instances of developers of applications, which are downloaded by Indians, residing abroad. They will now be liable to pay tax in India if they are deemed to have significant economic presence,” Shashishekhar Chaugule, partner at Walker Chandiok & Co LLP, was quoted as saying in the report.“While the new explanation could generate more tax litigation, it is in line with the Base Erosion and Profit Shifting (BEPS) treaty, which targets companies that exploit gaps in tax rules of different countries to shift profits to low- or no-tax locations,” the publication quoted Riaz Thigna, Director at Grant Thornton, as saying.India did not have a mode of taxing these global giants until now and 6 per cent Equalization Levy, introduced in union budget 2016-17, was imposed only for online advertisement.“Some of the challenges are questions such as what will determine India income, just because a company has users in here doesn’t mean it is necessarily making any revenue or profits from India,” the Economic Times quoted an official from a technology company as saying.The new amendment will allow the government to tax transactions that are related to goods, services or property offered by a non-resident in India using digital means. It also includes downloading data or software in the country, carrying out business activities as well as engaging with users in India using digital channels. Related ItemsEconomyTaxationlast_img