India to take call on removing Google Tax once global deal comes into force

India will await the outcome of the global tax deal before taking a call on withdrawing the equalisation levy on digital companies such as Google, Facebook, and Netflix, which have no physical presence in the country, said two official privy to the development.

The agreement of the Organisation of Economic Cooperation and Development (OECD) last week, backed by 136 nations, will be deliberated on by the finance ministers of G20 nations on Wednesday.

It suggests multinational companies will be subject to a minimum tax of 15 per cent from 2023. The discussion will be crucial because it will decide the modalities of the deal, which will go to the G20 leaders’ summit, to be attended by the heads of government, by month-end.

“We have given our agreement to the proposed solution at the global forum. But keeping in mind the complexities, the final call on removing google tax will be taken once the tax deal comes into force, said one of the two officials.

Sources said the roll-back of the levy would be done by amending the Income-tax Act.

The levy’s contribution to the exchequer has increased significantly in the past few years since its implementation in 2016 even though it is 6 per cent on payment received by a non-resident service provider from an Indian resident in respect to digital advertising, etc. In the first half of this financial year, the government had collected over ~1,600 crore, which is double of what it was last year.

On Friday, the OECD tied up several loose ends by reaching the final two-pillar solutions, and laid out a road map. It said there was an expected increase in additional tax of around $150 billion annually arising out of this deal.

This proposal works on two pillars, of which pillar 1 deals with fairer profit allocation to the market jurisdictions regardless of the physical presence of the entities there. For this a multilateral convention can be implemented from 2023. Pillar 2 has introduced a global minimum tax of 15 per cent. Countries are aiming to sign a multilateral convention in 2022, with effective implementation in 2023, it said.

The convention will be a vehicle for implementing the newly agreed taxing right under pillar 1, as well as for removing provisions with respect to unilateral measures like digital service taxes.

“No newly enacted Digital Services Taxes or other relevant similar measures would be imposed on any company from October 8, 2021 and until the earlier of December 31, 2023 or the coming into force of the Multilateral Convention. The modality for the removal of existing Digital Services Taxes and other relevant similar measures needs to be appropriately coordinated,” the OECD stated on Friday.

According to the OECD, the global tax deal will cover companies with revenues of 20 billion euros and a profit margin above 10 per cent. These largely cover the top 100 companies.

Earlier, India and other developing nations had proposed a threshold of 1 billion euros to cover 5,000 global companies. On the other hand, the levy has an annual revenue threshold of just 200,000 euros.

Experts are of the opinion that it won’t just ensure a fairer international tax system, it may end tariff wars between countries.