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January 2019

TAX VIA DATA LOCALISATION


The Indian government's move pushing Internet firms such as Facebook and Google to store data locally will not just help safeguard critical data of its citizens but also to ensure taxes are paid by these companies for services including advertisements sold to indian clients.

Without locally stored data, the companies do not have a physical presence in India, so they cannot be taxed. Facebook has 294 million users in India, while its messaging platform WhatsApp has 200 million users in the country, making it the largest user base for both firms.

Amit Maheshwari, partner, Ashok Maheshwary and Associates said once these companies set up servers in India, then they can be treated as a permanent establishment and authorities will get the right to tax all income attributable to the country


Equalisation Levy Has Already Yielded ₹ 1,000 Crores


GOOGLE TAX

In June 2016, the Indian govt introduced a 6% tax in the form of an 'equalisation levy' also known as Google tax on the amount paid to internet companies by advertisers. This has yielded over ₹ 1,000 crore till March 2018.







NAVY CONTRACT

India is still losing out on tax revenues on services such as annual or monthly subscriptions to streaming websites, or paid promotions done through platforms such as Facebook.


FACEBOOK'S INDIA REVENUES

In fiscal 2017, Facebook posted a profit of ₹ 40.7 crore on revenue of ₹ 341.8 crore, according to regulatory filings in India. Facebook's FY18 numbers are not available yet.

In September, Reuters citing unnamed sources, had reported that Facebook is expected to generate revenue of $980 million from India in 2018.


Facebook's 2018 India Revenues Expected To Be $980 M (₹ 6,860 Cr)



GOOGLE'S INDIA REVENUES

In November, press reports said Google India had remitted over $2 billion from the revenue earned in India during the last 5 financial years. The amount, was categorised as an expense towards 'purchase of advertising space.'

In fiscal 2018, Google India reported a 30% increase in revenues to ₹ 9,337.7 crore with profit after tax rising 33% to ₹ 407.2 crore. The amount transferred for 'purchase of advertising space,' increased by 36% to ₹ 4,949.6 crore, according to regulatory filings.



FY 18 Google India's Revenues Were ₹ 9,338 Crores ( $ 1.33 Billion)


NO EVASION

Pratibha Jain, partner at Indian law firm Nishith Desai Associates, said the need of the Indian government to tax transactions for entities in the country is understandable.

"But in a globalised world, one can't look at the transactions in isolation," she said.

"As a huge exporter of software services, we take advantages of the multilateral and bilateral tax treaties, so it's a dangerous game we are getting into through the localisation debate," Jain explained.

She said that India has double taxation avoidance treaties with many countries and these companies are paying tax in one jurisdiction or the other. "The big question is, are they evading tax, the answer is No!" n