On a great move India will start charging income tax on digital economy firms, such as Facebook, Twitter and Uber, soon after finalizing a framework by April 2015 to tackle the widespread corporate practice of shifting of profits to low-tax countries. Tax may be levied on overseas firms that have a ‘significant digital presence’ in the country by treating their domestic activities as ‘a virtual place of business’ akin to permanent establishment.
New Delhi, which is actively participating in the project on ‘tax base erosion and profit shifting’ will implement the proposals after a multilateral agreement for taxation of digital economy firms is signed. Taxation of digital economy firms is part of the larger goal of checking the shifting of profits to other countries for tax purposes.
The UK on December 3 announced a 25% tax with effect from April 2015 on profits that big companies make in that country but are ‘diverted’ to low-tax countries. The proposed multilateral deal would also lead to a massive change in the way MNCs report their global activities to tax authorities and the way specific transactions are chosen by tax officials for audit.