Framework to tax big Tech Companies (Download PDF)

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The govt. of India is likely to set a revenue threshold of Rs. 20 crore and a limit of 500,000 users above which non-resident technology companies such as Google, Facebook and Twitter will have to pay direct taxes on profits earned locally.

These limits are to be introduced as part of the Significant Economic Presence’ (SEP) concept introduced in the Union budget of 2018. SEP aims towards taxing the income of the non-resident arising from transactions relating to any goods, services or property in India, including allowing download of data or software or carrying on business activities in India through digital means.

Image shows of Framework to tax big Tech Companies

Image Shows of Framework to Tax Big Tech Companies

Image shows of Framework to tax big Tech Companies

Overview

  • It has been observed that despite making huge profits and revenues, the Multinational Companies are paying very less tax.

  • The huge source of profit and revenue comes to Multinational companies through offering services such as online advertising to customers in India.

  • The Global Corporations should invoice locally as per the revenue secretary of India. These Global Corporations are those with more than 1 million registered users in India including over 100 paying customers. These corporations are also supposed to be earning revenue of over Rs. 10 crore from customers.

SEP Concept & Needs

  • This “Digital Revolution has resulted in emergence of “Digital Economy”. Digital economy. Digital economy refers to an economy that is based on the internet, worldwide web, digital and cloud computing technologies. It is also referred to as the “Internet Economy” or “Web Economy”.

  • Digital revolution has also resulted in the emergence of new businesses such as Amazon, Flipkart, e-bay, Airbnb, Makemytrip, Uber, Ola, etc including the social media companies (such as Facebook/Instagram), internet based services (such as Google), digital wallets (Paytm) and so on.

  • These businesses have challenged the manner in which the conventional businesses are being done.

  • By 2021 India is expected to generate $100 billion online retail revenue out of which $35 billion will be through fashion e-commerce as per the reports of Google India Research.

  • The existing tax mechanism failed to tax transactions, especially in the case of the non-residents.

  • As per the international taxation system an income can be taxed by residence country (i. e. Country where receiver of income resides) or by source country i. e. Country which generates income.

  • The technological advancements have resulted in new business models. Under these new business models, the non-resident assesse operate remotely through digital medium in another country without having any physical presence in that country resulting in avoidance of taxation in the source country i. e. the country in which the said income has been earned.

  • The Conventional Tax system has become obsolete to a certain extent. This has resulted in massive tax avoidance taking place particularly in high tax jurisdictions such as India, U. K. and Israel etc.

- Published/Last Modified on: September 15, 2019

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