India Wants Fair Share of $100 Billion Global Taxes from Google, Facebook

MUMBAI: India is pushing for a major change at Organisation for Economic Cooperation and Development (OECD) on methodology at determining taxability in every jurisdiction hoping to tap a larger share of tax from multinationals such as Google, Facebook, Amazon and Netflix.

OECD recently said that income tax collections of major digital companies could go up by around $100 billion if new tax regulations are formed and adopted by all countries.

With a hope of getting larger chunk of $100 billion in global taxes to be paid by digital companies, India is pushing that number of users should determine taxes payable by digital majors in a country. The OECD under its Base Erosion and Profit Shifting (BEPS) initiative has come up with a number — $ 100 billion — in additional taxes digital majors need to pay globally.

“There are companies generating billions of dollars in revenue from India but manage to pay abysmal amount in taxes. All we want is that these companies cough up what’s only India’s fair share,” said an official aware of the development. He added that the government has been pushing for this and would be submitting its proposals to the OECD soon.

OECD is set to weigh in if a country has a right to tax the company based on intellectual property registered in the country or based on the number of users. India is strongly pushing for the latter as that could mean the global majors may have to pay more tax, said people in the know. Additionally, OECD is also asking these companies to pay at least 12.5% tax in each country– another win for India; as most companies merely pay about 6% (equalisation levy) on part of their revenues.

Companies such as Google, Facebook and Amazon have created structures whereby they end up paying no taxes in India as profits are swiftly moved to tax havens such as Ireland and Cayman Islands through creative holding structures.

“As per the Pillar 1 and Pillar 2 framework of the OECD, several MNCs could 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. It is expected that developing countries will benefit more than the advanced countries. Pillar 2 will reduce the tax rate differential between various countries and will therefore discourage MNCs to shift profits to low tax countries. This could benefit countries like India which are impacted by such shifting of profits,” said Rajesh H Gandhi, partner, Deloitte India.

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.

Tax experts say that India has already prepared its ground work for accepting the OECD’s guidelines by introducing the basic framework on “significant economic presence” or digital permanent establishment (PE) in 2018. The government in this year’s budget said that it’s waiting for the OECD guidelines before introducing domestic regulations.

Industry experts said that India could see a huge chunk of the increase in taxes from next financial year if the OECD guidelines are accepted by 130 member countries.

Source: ET

Image Courtesy: NewsNation