Google headquarters in Mountain View, California. Picture: BLOOMBERG/DAVID PAUL MORRIS
Google headquarters in Mountain View, California. Picture: BLOOMBERG/DAVID PAUL MORRIS

New Delhi — Big US tech groups such as Google and Facebook plan to seek deferment of a new Indian digital tax, which has caught them offguard as businesses battle the fallout from the coronavirus pandemic, three industry sources told Reuters.

India announced last week that from April 1 all foreign billings for digital services provided in the country would attract a 2% tax. Foreign billings are where companies take payment abroad for a service provided to customers in India.

The tax would also apply to e-commerce transactions on websites such as Amazon.com, as well as advertising revenue earned from companies overseas if it eventually “targets a customer” in India, the government said.

Executives of top technology companies got together on conference calls organised by US-India business lobby groups last week and decided to seek a deferment of at least six months, said the three people aware of the talks. They asked not to be named as the discussions were private.

Google is particularly concerned that it will not be able to swiftly identify countries where advertising arrangements were in place to target Indian users, increasing technological and compliance requirements, according to one of the sources.

“Everyone is grappling. In the current downturn, the focus is on protecting the business hit due to coronavirus,” said the source who works for a global technology company and described the tax as a “big, big headache”.

Google, Amazon and Facebook declined to comment. India’s finance ministry did not respond to Reuters queries.

India-US tension

The extent of possible compliance disruptions caused by the tax, an equalisation levy, was not immediately clear, nor was how much India could garner from the tax.

Indruj Rai, a partner at law firm Khaitan & Co, said the government’s move appeared aimed at taxing foreign companies which had a significant local client base but were billing them through their offshore, or foreign, units.

“The timing of the introduction of the levy appears to be an attempt to increase revenue collections during the pandemic,” Rai said.

The new tax was inserted in the 2020-21 budget amendments passed last week, giving companies only a few days to prepare. The levy was not part of budget proposals first presented on February 1.

India and the US remain at loggerheads on an array of tariffs. The digital tax has alarmed the US government, which has reviewed it, but Washington is not immediately likely to raise concern with New Delhi, given coronavirus priorities, said a fourth source aware of the US government thinking.

Reuters

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