Multinational digital giants such as Google, Twitter, Facebook and Amazon have often been accused of not paying a fair share of direct taxes in comparison to the earning they make through their services in countries around the world.
To enable governments across the world, including India, more right to tax tech giants, the Organisation for Economic Co-operation and Development (OECD) proposed regulations on taxation of digital companies.
“In a digital age, the allocation of taxing rights can no longer be exclusively circumscribed by reference to physical presence,” said the OECD in a consultation document.
The current rules in place are not sufficient to ensure a fair allocation of taxing rights in an increasingly globalised world, it added.
The proposal aims to create a new profit allocation rule applicable to taxpayers within the scope and eliminate the shifting of profits
to low tax jurisdictions.
It also added to bring new regulation where international corporate taxation not only be limited to seeking the right to tax activities from companies that had a physical presence on their soil.
Majorly, the proposal will allow countries to tax a part of the global profits of giant multinationals and fix rates of return on their local activities.
The proposal, if implemented, would benefit major economies including the US, China, UK, Germany, France, Italy and India. OECD plans to get a nod from G20 before January to chart out detail rules on the same.
Though, the development is a setback to India government plan on similar lines.
The govt has been for the past couple of months mulling to roll out a revised Tax structure applicable to multinational tech companies. Under the proposed tax policy, India planned to charge tech firms based on their user base.
It reportedly proposed close to 35% tax on the profits earned by tech firms in India territory.
These new developments come under the Significant Economic Presence’ (SEP) concept laid out in the Union Budget 2018.
In the Ministerial Symposium on International Taxation held at G20 summit in June, Finance Minister Nirmala Sitharaman highlighted the major issues related to remittance policies and taxation on the revenues of tech giants such as Amazon, Twitter, Facebook, and Google.
Countries like Japan, France, and the United Kingdom had rallied along with India to reach out to all the G20 members to adopt SEP principle and work towards reformed taxation code.