Google Tax For The Absolute Novice by Finance Club

Google Tax For The Absolute Novice by Finance Club

Guest Author | Dec 14, 2020

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What is google tax?

Google tax is the trending term for anti-avoidance tax provisions levied on corporate giants like
Google and other firms (the keyword being other) which had found a way to truncate the amount
payable by them in corporate taxes by moving their transactions to tax jurisdictions bragging
lower tax rates aka tax-havens.

The MNC taxation conundrum: international tax laws

Before delving into the origins of this tax, let us first understand the international taxation norms
as applicable to multinational companies. As the name suggests MNCs operate in several
nations so which country should tax the income of these firms? This is where international tax
laws make a rather discriminatory stance. As per these norms, the country listed as the resident
of the MNC can tax its income as in the country that houses the HQ’s of these firms as in the
developed nations of the world. So, for instance, a tech giant, its HQ in a developed nation,
makes huge profits off of the citizens of a developing nation. In fact, the profits from its resident
country pale in comparison to their revenues from the developing nation, yet the former gets to
enjoy the fruits of these profits. So basically, it kinda like: as you sow, so shall they reap
Last year 28 developing countries including India voiced their criticism of the prevailing dubious
international tax norms and demanded their fair share of the taxes paid by these MNCs to their
resident nations.
Ergo, a digital tax of some sorts has been implemented or are to be implemented on
these corporate giants in various nations.
The technicalities of this tax in India
Referred to as an equalization levy in India, this tax was first imposed in 2016 at a rate of 6% on
online advertisement services provided by non-resident e-commerce operators to resident
companies. The scope of this B2B tax has been modified in April 2020 to include a 2% levy on
all online sales of goods and services by non-resident e-commerce operators (equalization levy
2.0).

Pros and cons of the equalization levy 2.0

Taxing non-resident e-commerce operators on their transactions with resident companies and
citizens are equivalent to taxing the citizens and domestic start-ups themselves for these
corporate giants would be quick to shift the burden of this tax to their consumers. Moreover,
since the imposition of this tax would result in a reduction in the income earned by the way of
taxes payable by these companies to their resident nations, these developed economies are
threatening additional tariffs and reduced quotas on the exports from the developing nations that
have expressed intentions of levying this tax and India is no exception. Though nothing as
brazen as bilateral trade restrictions (yet), the US has initiated a probe to inspect the country’s
digital tax structure and the claim that this equalization levy is discriminatory as it targets mostly
American companies.

Sources: https://transfin.in/what-is-the-google-tax-in-india
https://m.economictimes.com/news/economy/policy/google-tax-government-re-thinking-equalisa
tion-levy/amp_articleshow/76207747.cms

https://www.bloombergquint.com/law-and-policy/de-escalating-the-digital-tax-debate

This article was sent to Team Monday Morning by the Finance Club, NIT Rourkela. Follow them on their social media handle for more updates: https://www.instagram.com/financeclub.nitrkl/?hl=en

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