Starting in October, Google is planning to pass on India’s 2% equalization levy, which went into effect in April 2020, to its clients whose ads are viewable in India.
Even if both the buyer and the seller are not based in India, the Google tax applies if the advertisement is visible in the country.
In 2020, the Indian government broadened the scope of the equalization fee, which had been levied on cross-border digital transactions since 2016 in an attempt to tax Google’s digital advertising revenues from India.
This was done to incorporate any acquisition made by an Indian or India-based agency through an overseas eCommerce portal.
A Google spokesperson went on record to say –
From 1st October 2021, we’ll be adding a surcharge to the invoices we send to non-Indian customers whose ads are viewed in India. The surcharge is to cover part of the costs associated with complying with the Indian Equalization Levy, which only impacts non-Indian advertisers. We will continue to pay all the taxes due in India and elsewhere
Here we can also recall how Apple since October 2020, is passing on the 2% equalization charge to Indian customers who buy applications or other products from its iTunes or App store. This excludes the 18 percent goods and services tax (GST).
This was essentially a levy on any programme purchased from Apple’s iTunes store.
It is creating a situation where even though neither the buyer nor the vendor is an Indian if the advertisement is viewable in India, the tech giant’s tax will be charged.
Ajay Rotti, partner, Dhruva Advisors said that there will be a variety of circumstances where the service receiver is not an Indian firm, but the equalization levy will apply if the advertisement is directed at an Indian customer.
He added –
Google’s interpretation is in line with the provisions of the law which covers certain specified circumstances where the levy would apply. This would add to the collections of the revenue department going forward
The new rules identify online selling goods or services as any purchase made online, any payment made online, or even an accepted offer made online, and they apply to all transactions.
Even if only a tiny portion of a transaction was completed online and the remainder was completed offline, the 2% Google tax might be charged.
By the virtue of this Google tax, many businesses are now concerned that the charge will apply to a wide range of transactions, including hotel reservations, software purchases, and even the purchase of specific components from other countries.
According to legal experts, because of the way the law is written, even ERP (enterprise resource planning) systems—internal software systems that many businesses use—could potentially be deemed an internet platform and so be subject to the levy.
A senior lawyer said –
The way the equalization levy law is worded, almost every transaction that happens on the internet could potentially face the tax. Also, many companies are relooking at their existing structures to see if they can park the India specific activity in a separate domestic entity to avoid complications around equalization levy
According to tax specialists, Google‘s interpretation will have an influence on a number of other businesses.
Because tax rates in some countries are near to zero, several firms have formed holding entities in tax havens where most earnings are gathered or where intellectual property is held, saving taxes on overall revenue.