India risks a tax clash with Biden over crackdowns on tech companies

India is heading to a confrontation with the Joe Biden administration after announcing one of the world’s toughest taxes on foreign tech companies.

This month, the Narendra Modi administration announced several amendments to the 2% “leveling tax” on digital services introduced in April last year. Analysts said this was equivalent to a tax increase.

The bill applies to everything from e-commerce to video streaming and is subject to a similar 6% tax on digital advertising from 2016 known as the “Google tax”.

The latest taxation is one of several examples of the bold and controversial steps New Delhi has taken to claim control over US tech companies. These range from strict data protection bills that pass Congress to efforts to regulate content on social media platforms. Twitter etc...

However, India’s new leveling tax runs the risk of a trade dispute with the United States labeled “the most obvious form of discrimination” on the final day of the Trump administration. The new levy raises the prospect of retaliation and could upset Biden’s efforts to improve the trade relations that plagued everything from agriculture to Harley-Davidson.

“I feel like I’m watching a thriller. Every few weeks there is a turn,” said Slangeri Tandon, an assistant professor at the Government-backed National Institute for Fiscal Policy.

India’s levy occurs when governments around the world scrutinize Big Tech’s role in society, including upsets on news media and the amount of taxes paid.

New Delhi has been criticized for doing well in the country, such as Facebook and Google, but early aggressive levies targeting companies that are paying limited taxes due to their offshore structure Was a supporter.

New Delhi has moved forward, dissatisfied with the slow progress made by the OECD to develop a global model for taxing technology. Several other countries, such as the United Kingdom, France and Italy, are also pursuing their own digital service taxes.

“You can think of it as a way to make money and get rid of the problem, or to take everyone to the table to discuss your terms,” says Tandon. “The latter works well enough. If no leveling tax were levied, India would not have the ability to negotiate as it does now.”

Surveyed US Trade Representative Digital taxes in multiple countriesSaid that India’s leveling tax is broader than elsewhere. Of the 119 companies that would probably have to pay a levy, 86 were Americans, who said it would bring millions of dollars in compliance costs for individual businesses.

Analysts are uncertain whether Biden will follow the harsh stance taken by Trump, who has highlighted a 25 percent tax. French luxury imports In retaliation for that digital tax.

“It will be more difficult and a nuisance,” said Mayapan Nagappan, international tax practice leader at law firm Nisys Desai Associates.

Mr. Nagappan said that the leveling tax range is wide, the threshold is low, and companies with annual revenue of Rs 20 million ($ 275,000) or more are taxable, so it is possible to completely exclude SMEs from India. Said there is.

“These are the types of companies that don’t appear in court,” he said. “They don’t just come to India.”

India has recently been trying to shift its balance of power with Silicon Valley. For example, it is at odds with Twitter over the platform’s hesitation to comply with the request to remove content related to recent farmers’ protests.

New Delhi is also interested in Australia’s controversial New media lawLast week, Prime Minister Modi and Prime Minister Scott Morrison discussed the bill.

Ensuring that foreign tech companies pay more taxes is an urgent task for India. With a population of 1.4 billion, increased revenues, and widespread adoption of smartphones, businesses ranging from e-commerce to cloud services are booming.

However, the country is suffering from a chronically low tax base, and the challenge is exacerbated by the coronavirus pandemic leading to severe revenue shortfalls.

The government said it collected about 15 billion rupees from the leveling tax from April to the end of January, up from 3.4 billion rupees the following year, which was introduced in 2016.

Mukes Butani, managing partner of law firm BMR Legal, said the rationale for leveling taxation is “very simple” from a government perspective.

“You are doing economic activity,” he said. “You may not have a physical presence, but you have an economic connection because you are dealing with my citizens.”

However, India’s approach to digital taxes risks strengthening its reputation as a difficult place to do business, a product of years of controversy with companies such as Vodafone and Vodafone. Cairn Energy It exceeded the taxation sought retroactively.

India in 2018 also stepped up its pursuit of offshore technology companies.Important economic presenceIn India, you will face local taxes, not physical existence. However, most Western companies are currently protected from this provision, thanks to bilateral tax treaties.

Analysts are divided on whether Indian gambling will be rewarded. Ashish Goel, a lawyer at the Supreme Court of India, said it could ultimately help India promote better tax terms on the global stage.

“We can’t keep waiting,” he said. “There should be a friendly solution not only in developed countries but also in developing countries.”

India risks a tax clash with Biden over crackdowns on tech companies

Source link India risks a tax clash with Biden over crackdowns on tech companies

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