India’s looking to reform century-old international tax rules at the G20 Summit
- Nirmala Sitharaman, India’s new Finance Minister, will be representing the country’s proposal for new digital international tax laws at the
G20 Summitin Japan this weekend.
- India, like a lot of European nations, is proposing a proportional law based on where tech giants like Facebook, Amazon and Google have the most users.
- This may be good news for countries like India and the US that garner the majority of users from tech giants, but for Ireland — home to Facebook’s headquarters for its low tax rates — this means having to rethink their revenue streams.
Officials told Business Standard that India will be looking to garner support for its proposal that suggests a proportional assignment of profits for
This is will be the first time in nearly a century that international tax laws will be modified, which is to say that it’s long overdue.
Need for reform
India is proposing that global tech companies should be taxed according to where they do most of their business, and not according to the location of their headquarters.
Facebook, for instance, would have to pay taxes as per where its users are rather than centralizing its profits in Ireland to take advantage of the country’s low tax rates. Even Amazon and Google would have to allocate revenue to countries that have larger user bases for the tech giant, according to Nekkei.
Unlike traditional corporations, global and otherwise, that needed their physical presence in a country — tech giants don’t necessarily need to have a physical office in every country where it has users.
It was one of the complaints that the Indian government had against WhatsApp, which faced heat in the country for propagating fake news without grievance redressal measures or a grievance officer who is physically stationed in the country.
Tech companies can generate value through user participation on its platform, without having a physical presence.
The Double Irish
Countries all over the world, including the US and the European Union, have been working on a way to address this issue. The Organization of Economic Cooperation and Development (OECD) published their own research on base erosion and profit shifting — calling it the Double Irish.
According to their deductions, new tax laws either need to determine where taxes incurred by multinational tech giants should be filed and on what basis — or there needs to be a minimum level of tax that tech giants absolutely have to pay.
While tax reforms will be good news for countries like India that’s home to over 300 million Facebook users and 400 million Google users — it’s not so good for the government of Ireland.
Stakeholders in the country are gearing to face what is being called the ‘biggest shake up’ in global tax policy.