The sword of double taxation hangs over big tech companies


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Bombay | New Delhi: Big tech companies fear that India’s equalization tax – combined with similar digital tax regulations in countries like the UK and France – could result in double taxation, according to industry insiders.

Some of the big tech companies are working to create additional technology structures or infrastructure that can potentially block certain jurisdiction-based content or ads to avoid tax complications, they said.

Google, Facebook, Amazon, Apple and Twitter are among the multinational companies that could see their advertising and content revenues taxed in various places because of these regulations. In some cases, these companies can be taxed in two or even three jurisdictions, according to tax experts.

India, France and the UK have introduced unilateral measures to tax digital giants, meaning they have not been recognized by other countries and could go against the tax framework international.

Take the example of India’s equalization tax.

India levies a 6% tax on the advertising revenue of multinational companies if the advertiser is based in the country. There is also a 2% equalization tax even if the advertisers or multinationals are not based in India, but the advertising is visible in India.

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Tax experts said the question revolved around whether the tax is payable in countries where the advertiser is located or where the advertisements are reflected or visible.

“At the moment, India levies taxes on these two products. However, with other countries such as the UK which levy DST (digital services tax) on business users or advertisers and these EL (equalization taxes) / DST not being creditable in the jurisdiction of Originally, the digital giants should see not only doubling, but multi-level taxation (linked to the payer, linked to access and based on tax domicile) on the same transaction. That too, at the gross revenue level, which dramatically increases costs for these technology companies, ”said Rahul Garg, Managing Partner at Asire Consulting LLP.

These digital taxes, which fall outside the scope of international taxation, cannot be offset by other national tax obligations. In tax terminology, this means that businesses will not get credit for these taxes in other countries.

“Not all digital direct debits are eligible for foreign tax credits. The Indian equalization levy, for example, is not governed by tax treaties and therefore is not eligible for a credit against home country taxes, ”said Ajay Rotti, partner at Dhruva Advisors.

Singapore’s tax authorities have allowed businesses there to treat Indian EL as a tax-deductible expense, but businesses won’t get credit for it.

“This essentially means that EL becomes a cost and that companies will have to pay taxes in their home country on all profits, including income on which taxes have already been paid in India. This leads to double taxation, ”Rotti added.

Twitter, Facebook, Google, Amazon, Apple and LinkedIn did not respond to ET’s queries.

If UK-headquartered Rolls Royce advertises on the Facebook platform, but the content is also viewable in India, India will claim that a 2% equalization tax should occur. apply to the transaction, while the UK will claim that daylight saving time should apply on the advertisement.

Even after paying taxes in India and the UK, the business may have to pay corporate taxes in the country where it is located.

Some companies are looking to change some existing structures where domestic bots will block certain global ad content, insiders said.

“This can be done easily as some of the big platforms are already doing it to avoid some sensitive country specific content. The only question is whether this could cause further complications, ”said a senior lawyer who advises a large digital company in India.

Many companies have already started to pass these digital taxes on to their customers.

ET was the first to report on July 29 that Google was ready to pass India’s equalization tax on to all of its customers whose ads are visible in the country, starting in October. It could also push other digital multinationals to follow in his footsteps.

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