Will FB, Google Now Have To Pay 40% Tax In India?

Will FB, Google Now Have To Pay 40% Tax In India?

It won’t be an understatement to say the new social media guidelines or Information Technology (Guidelines for Intermediary and Digital Media Ethics Code) Rules, 2021 have created havoc amongst the social media giants. While the content disruption was expected, the new possibility of a substantial tax rate increment is disturbing. Is this India’s way of making these tech giants pay? Well, find out yourself here.

Crux of the Matter

As per new social media guidelines, the tech giants have to introduce offices of:

  • Compliance Officer
  • Nodal Contact Person
  • Grievance Redressal Officer

These offices are to be held by the Indian Residents only.

How Does Taxation Come in Picture?
These new offices might be argued to fall under the purview of Permanent Establishments (PE) as per the Indian Taxation System. As per the Indian Income Tax Act: “PE includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.”

Purpose of A PE
It is the status of PE that determines under which country’s laws, will the MNCs be taxable and up to what extent. The law is in place to avoid double taxation for firms operating in multiple nations.

Ongoing Rates

  • Since the PEs aren’t based out of India, the domestic entities pay tax only on fees or profit margins from a foreign entity.
  • A 6% of equalisation levy (advertisement revenue) and 2% on digital transactions is currently charged by the Indian govt.

The Expected Disruption
Now with the three offices expected to be working 24×7 in India,  as per PE norms, a large portion of the amount earned out of India
is expected to be taxed at a 40% slab rate.

Final Thoughts
If at all the PE criteria is triggered from the govt’s end, these firms can still argue that these offices are just ancillaries to the main firm – thus keeping the present tax rate intact.

  • The motto of the Income Tax Department of India is “Kosha Moolo Dandah”, coined by Chanakya. It means “Treasury is the root of administration”.
  • Only 1% of the Indian population pays income tax.
  • James Wilson, the founder of The Economist newspaper, was also British India’s first Finance Minister. He is responsible for introducing Income Tax in British India.