The important question is whether the US would change its stand on the issue, say experts.
Under the Base Erosion and Profit Shifting (BEPS) framework, large economies—barring the US—have come together to tax the global income of digital companies. Indian taxmen wants companies to discuss issues if any that they could face under pillar 1 and pillar 2.
The US had refused to be part of BEPS claiming that it largely targets American multinationals such as Apple, Amazon, Facebook and Google.
OECD had been trying to bring large economies on one page under the BEPS framework. The issue, say industry trackers, is $ 100 billion large. Most of the large digital giants have created a maze of companies across the world as part of their tax planning. This also means that they don’t pay domestic taxes in several jurisdictions as per the liking of the local governments.
ET on October 13 wrote that Google, Facebook, Amazon, LinkedIn and Netflix could face larger domestic tax liability after OECD postponed a common tax framework for global economies, a move that will allow countries like India to go ahead with their own plans to tax the digital giants.
India is part of OECD and hopes to tax some of the digital giants in the country.
OECD was expected to come out with a common tax framework by December this year, now it’s expected to do so mid-next year. The US has already threatened reciprocal treatment of any economy that attempts to tax the digital giants. The US in June has already launched an investigation on how some of the countries including India are taxing digital companies such as Google, Twitter and Facebook in India.
India in 2018 had said that global digital companies have a large consumer base in India but don’t pay enough taxes domestically.
There is a global push to bring the digital giants under the ambit of local taxes. Many such companies deliberately base themselves in low-tax jurisdictions.
India has come up with the SEP framework, whereby it can tax global giants taking their user base into consideration, a move objected by the US. Indian government officials say that digital giants earn as much as Rs 25,000 crore from India but they do not pay domestic tax on the entire amount.
In most cases digital giants have created domestic companies that only charge “fees” or “commissions” and domestic tax (30%) is only paid on this portion of the amount.
To circumvent this, the Indian government has introduced an equalisation levy—6% on advertising revenue and 2% on online purchases—on digital transactions.
According to the people in the know, the concern among digital companies was that they might face tax in different jurisdictions for the same profits.