Double Taxation Sword Hangs Over Big Tech

Big technology firms India’s equalization levy, combined with similar digital tax regulations in countries such as the UK and France, will lead to double taxation, industry insider said.

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

Google, Facebook, Amazon, Apple and Twitter are among the multinational companies that could see their advertising and content revenue being taxed in various location due to these regulations.

In some cases, these companies may be taxed in two or even three jurisdictions, tax experts said.

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

Take India’s equalization levy, for instance. India charges 6% tax on any advertising revenue of multinational firms if the advertiser is based in the country. There is based in the advertisers or multinationals are not based in India, but the advertisement is visible in India.

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

“As of new, India collects taxes on both of these. However, with other countries such as UK that levies DST (digital service tax) on business users or advertisers and these ELs (equalization levies)/ DSTs being non-creditable in the home jurisdiction, digital giants are set to see not only double but multi-layer taxation (payer-linked, access-linked and based on fiscal domicile) on the same transaction. That too, at gross revenue level, which increases the cost significantly for such tech businesses,” said Rahul Garg, Managing Partner, Asire Consulting.

These digital taxes, which are outside the gamut of international taxation, cannot be set off against other domestic tax obligations. In taxation terminology, this means companies will not get a credit for these taxes in other countries.

“Not all digital levies are eligible for foreign tax credits. The Indian equalization levy, for instance, is not governed by the tax treaties and hence not eligible for credit against home country taxes,” said Ajay Rotti, partner, Dhruva Advisors. Singapore’s revenue authorities have permitted companies there to treat Indian EL as tax deductible expense, but companies will get credit for that.

“This essentially means that EL becomes a cost and companies will have to pay tax in their home country on entire profit, including the revenues on which tax has 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 Rolls Royce, headquartered in the UK, advertised on the Facebook platform, but the content is visible in India too, India will claim that a 2% equalization levy should apply on the transaction, while UK will claim that DST Should apply on the advertising. Even after paying taxes in India and the UK, the company may have to end up coughing up corporate taxes in the country where it is located. S-ET

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