Centre to tax foreign tech firms on profits; framework being finalised: Report

The government is finalising a framework to tax foreign technology companies that have a user base of 500,000 and above and earn more than Rs 20 crore revenue, a move that will have a bearing on tech giants such as Google, Facebook and Twitter, reports The Economic Times.

The direct tax at 35 percent would be on par with what local companies pay and will be imposed on profits earned by foreign companies in India, the report said.

The move was under consideration after Budget 2018 introduced the ‘Significant Economic Presence’ concept and the Central Board for Direct Taxes (CBDT) had in July that year called for suggestions to frame SEP rules.

Besides the framework for tech companies, SEP may be included in the Finance Ministry’s draft direct taxes code, which aims to streamline India’s direct tax laws, it added.

Moneycontrol could not independently verify the report.

India is not the only country examining the tax structures for foreign tech companies, which pay meagre amounts compared to revenues, profits and advertising business generated locally.

The EU is mulling a 3 percent tax on multi-national tech companies. France, an EU member, has already announced separate tax rules for such companies.

At the G20 summit in June, Finance Minister Nirmala Sitharaman had brought up the issue of taxation of profits made by digital companies, the report said.

Tech companies have been using “purchase of advertising space” to circumvent tax structures. Google remitted more than $2 billion between FY14-18 on the same grounds. It also filed around 50-60 percent of revenue in India under the same category.

Tax authorities have argued that these remittances are not cost, but royalties which can be taxed. Firms like Google and Facebook billed users locally, but reported only part of the transaction as India revenue and remitted the rest to overseas entities as cost. In response, India introduced an equalisation levy of 6 percent on such remittances, one of the highest in the world, the ET report said.