Taxation issues require
good amount to tax management to reduce the incidence of taxation.
While tax management is permissible yet tax evasion is a punishable
offense in most jurisdictions of the world. An Oxfam report has
revealed that as many as top 50 US companies, including the likes of
Apple, Walmart, General Electric, Microsoft, Google and Coca-Cola
have a whopping $1.4 trillion stashed in offshore tax havens. Indian
government is aware of these developments and it has decided to
deepen alliance with US to combat tax evasion in both countries.
Tax liability of Google
in not new to India. In the past as well, questions about tax
liability of Google has been raised by many quarters. Even
the European Union wants Google and Bing to be more transparent about
advertising in web search results.
According to the recent
Indian Budget announcement, any person or entity that makes a payment
exceeding Rs 1 lakh in a financial year to a non-resident technology
company will now need to withhold 6% tax on the gross amount being
paid as an equalisation levy. For instance, if a person spends a sum
of Rs. 2 lakh on online advertisement from Google in a single
financial year, he has to withhold 6% tax on the gross amount being
paid as an equalisation levy.
The said rule is
applicable when the payment is made to companies that don't have a
permanent establishment in India. This tax, however, is only
applicable when the payment has been made to avail certain B2B
services from these technology companies. Specified services include
online and digital advertising or any other services for using the
digital advertising space. This list, however, may be expanded soon.
Online advertising
industry in India is going to flourish at a great speed in the coming
years. Firstly, individuals or companies using online advertising
platforms of India do not need to withhold 6% tax on the gross amount
being paid as an equalisation levy for availing these services in
India. Secondly, Google has recently scrapped
the page rank criteria and this would provide a level
playing field to all websites and blogs that provide qualitative
contents but are not very good at page rank. Now online advertisers
would rely more upon good placement in search engines and Alexa rank
than upon platforms that were manipulated through inflated page rank
through negative search engine optimisation (SEO).
Google's online
advertisement revenue is going to be affected by these developments.
Further, the tax liability of Google is also going to increase in
India if it wishes to generate revenue from India or Indian
transactions. Google would also be required to comply with e-commerce
laws of India that are still in a development stage. There
are also writings on the wall that foreign companies and e-commerce
portals would be required to be registered
in India. Google needs to adjust its policies for India for optimum
results while maintaining its dominance in the cyberspace.
Source: Corporate
Laws India.
