Digital Taxation: An Issue of Concern for the Whole World

India benefits from G-5 nations' 15% global corporate tax proposal

- The lowest tax slab in the UK is 19% and the highest tax slab in France is 32%

Digital taxation on giant technology companies has become a global concern, mainly due to the inability to keep centuries-old taxes consistent with the rapidly evolving business model. Technology is intangible. Technology has made business borderless, allowing companies to operate without the need for a real presence and without the movement of employees. The G-20 / OCED's Base Erosion and Profit Shifting (BEPS) project is a major step in this direction to amend tax laws to offset the effects of the evolving business model.

Of course, many milestones have been achieved in this global initiative, but for the last eight years, there has been a struggle between the various countries to reach a consensus on the issue of digital taxes.

A minimum 12% global corporate tax in the G7 deal will benefit India: -

After years of negotiations, on June 6, 2021, the G-7 nations (including the UK, US, Canada, Italy, Germany, Japan and France) finally succeeded in framing a global digital tax framework related to OECD Framework 1 and 2. The long-awaited general framework proposals have been made by global economic superpowers other than China, shortlisting the top 100 global companies with a turnover of more than ૭૫ 50 million and home countries, ie the company's own country and shores. In between, taxation rights will be established.

Part I proposes to allocate 40 per cent of the exclusive global profit margin of 10 per cent to the G7 nations in the jurisdiction of the commodity market. So for Part-II, it is proposed to allocate at least 15 per cent global minimum tax rate on the basis of different countries.

The first discrepancy here is that the corporate tax rates of the G7 countries are already above 15 per cent, with the lowest tax slab in the UK at 12 per cent and the highest tax slab in France at 5 per cent.

A parallel study was conducted by UN member states and the UN Expert Committee on International Cooperation on Taxes recently released the final draft of Article 12B, which proposes a simplified approach to taxing 'automated digital service companies'. Kept.

The first option is equivalent to India's Equalization Levy (Equal), which has a base rate of 5 to 6 per cent on gross income, while the second option for non-residents is to declare limited PE in market countries and pay tax on net income. Applicable local tax ratio - will be 50% based on net income in India.

The big question here is where does India stand now on this issue? As one of the largest consumer-oriented markets, India has made its position clear that it wants its fair share in OECD's BEPS project through a number of initiatives such as active participation. BEPS is one of the first non-OECD countries to implement Action Point-1. In the form of unilateral digital tax - Equalization levy (EQL) and subsequently significant economic presence (Significant Economic Presence-SEP) to increase tax rights on non-resident companies will have to amend their own local law. India has taken a simple approach from the beginning. At its initial level of equalization levy-1.0, India targeted digital advertising revenue of over Rs 2 crore from global giant companies through a withholding tax mechanism and levied a 5 per cent tax on such revenue overall.

G7 countries reach historic tax deal to support global corporate tax of at least 12%: -

India introduced a tax on digital goods and digital services, which would be taxed at a rate of two per cent on a gross payment basis based on a model adopted by the United Nations, covering all transactions made by appropriate e-commerce operators or e-commerce suppliers.

India has recently notified the SEP of non-resident companies in the country. The first limit is the payment of more than Rs 3 crore for any transaction related to the provision to download any goods, services, assets, data or software in India, the second limit is 3 lakh users with whom a non-resident is conducting systematic and continuous business activities or with whom he interacts. Running. Of course it may not significantly affect the taxes of technology giants, but its implementation during the current Corona epidemic could be worrisome.

The above measures clearly indicate that while India's theoretical approach is similar to that of the G7 countries, it will target all businesses and will not be limited to automated digital companies. No.