It has been reportedly found out that India is adamantly pushing for a huge change at Organisation for Economic Cooperation and Development (OECD) to impose a fair share out of the estimated $100 billion global taxes, on global multinational tech giants who have been minting a lot of profit from their operations in India.
As of now e-commerce companies like Amazon and Alibaba, search engine and social media platforms like Google and Facebook that send target ads, and streaming services like Netflix are on OECD’s radar.
The Organisation for Economic Cooperation and Development (OECD) believes that income tax collections of major digital companies are predicted to shoot up to around $100 billion once the new tax regulations are formed and adopted by all the countries.
India hopes to rope in a large chunk of the $100 billion in global taxes to be paid by digital companies and therefore it is pushing that it should be the number of users based on which the taxes payable by these tech giants in a country should be decided. Base Erosion and Profit Shifting (BEPS) initiative under OECD came up with the number $100 billion in additional taxes that these multinational companies need to pay globally.
An official who is connected to the developments of this issue commented on the same by saying that these companies who generate massive amounts of wealth in billions from India get away with paying very little amount in taxes. Therefore, all that’s wanted from them is to pay their fair share to our country India. It was also mentioned by him that the Indian government will soon start submitting proposals to the OECD soon.
To put things in perspective, Facebook posted Rs 892 Cr (US$125 million aprox) as revenue in FY’19 (2018 – 19), a jump of 71% as compared to the year before, in India. Similarly, Google’s revenue from its Indian operation reached Rs 4147 Cr (aprox US$600 million) in FY’19. The company’s profit increased 17% YoY, to Rs 473 Cr. (US$65 million) in just one year.
Such figures are evident to the fact that tech companies are minting millions of dollars from India every year. And, given the fact that the internet and smartphone revolution in the country has just begun, these figures would only increase in the coming years.
Now it is upon the OECD to decide whether a country has the right to tax the company based on intellectual property registered in the country or based on the number of users. India, of course, is rooting for the latter. In addition to this OECD has also asked these multinational tech giants to pay at least 12.5% tax in each country they operate in. This is surely is a mini win for India’s agenda as most of them pay only 6% (equalisation levy) on part of their revenues, also popularly known as ‘Google Tax’.
India’s War Against Tech Giant
These multinational tech behemoths such as Google, Facebook and Amazon have put in place structures which help them paying no taxes in India. The profits these companies make are swiftly moved to tax havens such as Ireland and the Cayman Islands through creative holding structures.
Rajesh H Gandhi, partner, Deloitte India commented on this issue by saying that under several MNCs could possibly witness an increase in their Indian tax liability because they will start paying taxes in countries like India which are market economies even if the MNCs don’t have a large local presence in India. This will be done in accordance with the Pillar 1 and Pillar 2 framework of the OECD.
Pillar 1 and 2 approaches under the OECD mainly refer to the tax structuring undertaken by multinationals to create investment companies in tax havens to escape taxes.
He also said that this move will benefit emerging or developing countries such as India more than their advanced counterparts. Pillar 2 will reduce the tax rate differential between various countries and will, therefore, discourage MNCs to shift profits to low tax countries and India surely could benefit from this as it is impacted by such shifting of profits.
Various industry experts believe that India will likely see an increase in taxes from the next financial year if OECD guidelines are accepted by 130 member countries.
It s being believed that India has already prepared their groundwork for accepting the guidelines of OECD by introducing the basic framework on “significant economic presence” or digital permanent establishment (PE) in 2018. In this year’s budget, the Indian government mentioned that they are waiting for the OECD guidelines before they introduce further domestic regulations.
