February 4, 2021 3:09:26 am
Firms reaping economic benefits from a different country have to be taxed even if they do not have a physical establishment in that jurisdiction, argued Commerce Secretary Anup Wadhawan on Wednesday, while defending India’s decision to impose a 2 per cent digital services tax on foreign e-commerce firms. Wadhawan said the government disagreed with the United States Trade Representative’s (USTR) findings that this equalisation levy was discriminatory against American firms.
His comment follows a USTR report from last month that concluded, following an investigation, that the equalisation levy on non-resident e-commerce firms like Facebook and Amazon discriminated against American firms.
“… our position is certainly conveyed (to USTR), and we don’t agree with that conclusion (of USTR) … because, basically, if there is economic benefit from a certain jurisdiction, then there has to be some taxation in that jurisdiction,” said Wadhawan at a media briefing when asked about whether India had responded to the USTR report on the issue.
“That old argument of … permanent brick-and-mortar establishment, that doesn’t work,” he said, adding, “You have billions of dollars of revenue in a certain jurisdiction, you have to pay taxes.”
According to Wadhawan, countries in the Organisation for Economic Co-operation and Development (OECD) are also moving in this direction and leveraging similar measures to tax firms that have an economic presence and gain in a different jurisdiction.
He suggested that countries like the US were currently protesting this move because they accounted for a majority of the e-commerce businesses reaping economic benefits in foreign jurisdictions like India.
“Some countries have a huge domination in that kind of activity today — whether it is Facebook, Google or Amazon … so that explains why they are protesting. When the economic activity of this kind shifts to a more balanced mode, then the same countries will say ‘I want to tax the foreign entity doing business in my country without physical presence.’,” he said.
Wadhawan also commented on India’s attempts to wrap up a mini-trade deal with the US that has been in the works for over a year now, claiming that the sticking points between the two nations had been “largely” addressed. The Biden administration has also shown “very encouraging” signs where US-India relations were concerned, according to him. “The sticking points have been largely addressed,” he added.
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