Sword of double taxation hangs on Big Tech firms

Some of the Big Tech companies are working to create additional structures or technology 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 locations 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 recognised by other countries and could run contrary to the international tax framework.

Take India’s equalisation levy, for instance.

India charges 6% tax on any advertising revenue of multinational firms if the advertiser is based in the country. There is also a 2% equalisation levy even if 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 now, India collects taxes on both of these. However, with other countries such as the UK that levies DST (digital service tax) on business users or advertisers and these ELs (equalisation 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 at Asire Consulting LLP.

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 equalisation levy, for instance, is not governed by the tax treaties and hence not eligible for credit against home country taxes,” said Ajay Rotti, partner at Dhruva Advisors.

Singapore’s revenue authorities have permitted companies there to treat Indian EL as tax deductible expense, but companies will not get a 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, advertises on the Facebook platform, but the content is visible in India too, India will claim that a 2% equalisation levy should apply on the transaction, while the 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.

Some of the companies are looking to tweak some existing structures where domestic bots will block certain global advertising content, insiders said.

“This can be done easily as some of the large platforms already do this to avoid certain country-specific sensitive content. The only question is if doing so could lead to additional complications,” a senior lawyer who is advising a large digital company in India said.

Many companies have already started passing on these digital taxes to customers.

ET was the first to report on July 29 that Google
was all set to pass on India’s equalisation levy to all its clients whose advertisements are visible in the country, beginning October. This could also put pressure on other digital multinationals to follow in its footsteps.