Google, Facebook, and Twitter are some of the biggest companies in the world in terms of revenue. The Indian Government is planning to tax these big companies directly if their local revenue goes beyond a certain threshold. The government is thinking a revenue threshold of INR 20 crore. Not only Google, Facebook, and Twitter but every other non-resident tech company will pay direct taxes to the Indian Government if the proposal is accepted.
The tax is a part of the Significant Economic Presence (SEP) which was introduced just after the budget session of 2018 was concluded. Central Board for Direct Taxes has been closely monitoring the concept of SEP and has also asked for suggestions to frame the taxation rules.
The direct taxes code is also being amended by the Indian Government to simplify the laws related to direct taxes. Under the SEP, non-resident companies will have to pay 35% tax on the amount they earn above INR 20 crore.
Nirmala Sitharaman, the finance minister of India has taken this step to deal with fugitive economic offenders. She is also pushing other G20 countries to adopt the same. The European Union is also considering a tax of 3% on profit of foreign tech companies. If the member nations approve of this proposal, all foreign tech companies with annual global revenue of 750 million Euros or over will be taxed.
This is a complex situation for both India and foreign tech companies. If these tech companies do not agree to the terms and conditions of the Indian Government, then the process of renegotiation could be a lengthy one.
This step has been taken because it has been found that these multinational tech companies do not file their tax properly. In other words, these tech companies earn huge profits from sources like online advertising to customers in India but only pay a very small portion of it as tax to the government.