MUMBAI: India may be looking at different options to tax major digital entities. However, considering the fact that it is a tedious process to renegotiate tax treaties, the centre is looking at base a multilateral instrument (MLI) to implement the fresh tax related framework. The report also says that India may propose the new condition under the international tax framework of the Organisation for Economic Co-operation and Development to tax internet majors operating in the country. It may be noted that in the year’s Budget, the government has shown interest to tax digital entities or business with a large pool of users by proposing to amend the Income Tax
However, there seems to be one major problem ahead of the government owing to double taxation avoidance agreements (DTAAs), which will not be covered under the proposed change, thus indicating that in order to tax Facebook, Google or Netflix, India is required to renegotiate tax treaties.
As mentioned earlier, renegotiating tax treaties with the US is a tedious tax, and it may take years to strike a deal, as observed earlier in 1989. Commenting on the issues, a senior government official admitted that “amending” another treaty with the US is difficult unless it too wants to introduce this provision.
He went on to say that India would consider itself lucky if a treaty is signed in this regard with the US in another five years. It may be noted that major digital companies will only fall under the tax net if existing treaties are reviewed or new ones are signed again – both are uphill tasks which would require years.