The Central Board of Direct Taxes (CBDT) has prepared a draft proposal under the newly introduced concept of ‘significant economic presence’, also known as digital permanent establishment (PE), which seeks to impose tax at 30 to 40 per cent rate based on the revenues and user base of such companies in India.
This will be applicable to firms, who have the user base over 200K.The existing rule based on physical presence no longer holds good for taxation of business profits in the source country, added CBDT.
The rights of the source country to tax business profits that are derived from its economy are unfairly and unreasonably eroded, as per the Finance Bill 2018 explaining significant economic presence.The proposed changes may lead to a change in tech firms holding structure. And this has been their major point of concern for global behemoths.
According to experts, the point should be handled with caution as it may discourage their further investment plan and trade relation.Though, the final guideline on this may take a year time, said a Business Standard report. Meanwhile, the draft proposal has received positive feedback from around 125 countries, out of 180 countries it shared with.
Earlier, the Indian govt had noted that global tech giants don’t pay enough taxes in the country. It further said that many companies deliberately base themselves in low-tax jurisdictions.Currently, subsidiaries of foreign firms in India have to shell out 40 per cent corporate tax, which is 10 percent more than what Indian firms pay.
In addition, levies of 6 per cent are charged by the tax department for the payment made by a resident firm to foreign e-commerce companies for online advertisement.