The French connection: Indian tax authorities may now go at Google, Facebook, Amazon

US tech giant Google’s $1 billion settlement with french tax authorities has come as a big relief for countries like India that have been struggling to levy and collect taxes from global tech giants. Indian tax authorities have been trying to tax the operations of tech giants like Google, Facebook, Twitter, Amazon, Microsoft, LinkedIn and NetFlix among others that have a significant business presence in the country but hardly pay any taxes. In 2016, India imposed an equalisation levy, popularly known as Google tax, at a rate of 6% for availing certain services of digital companies, including placing online advertisements on these platforms. But it was collected from the service recipient instead of from service provider if the entities availing the service was an entity registered in India. Google’s settlement with France will certainly provide more clarity on tricky issues like defining the rules to determine the place of supply rules to assess the tax liability.

In July this year, France announced a levy of 3% tax that was targeted at more than 30 global digital companies, mostly US tech giants. In response, US President Donald Trump threatened a tit-for-tat retaliatory tariff on French products, including French wine. However, Fench President Emmanuel Macron refused to buckle down under the US threat.

In a strongly-worded statement, French President Emmanuel Macron had said: “Some digital players pay very little tax. This is an injustice that destroys jobs.”

French authorities had hoped to earn 500 million euros from the tax on 30 odd digital companies. However, the settlement with Google shows that the tax liabilities of these companies could be even higher. French govt will receive nearly one billion euros from Google alone as a settlement, nearly twice as much as they had hoped to earn from all the big digital firms having operations in their country.

What is more important is the announcement by two French ministers that it definitively settled all the contentious issues the country had with Google.

French Justice Minister Nicole Belloubet said the settlement showed that the French authorities have the tools to ensure an equitable tax system.

“It is a historic settlement both for our public finances and because it marks the end of an era,” French budget minister Gerald Darmanin said. “By normalising Google’s situation in France, (the settlement) responds to our citizens’ demands for fiscal fairness.”

In the union budget of 2016, then financne minister Arun Jaitley had announced the imposition of an equalisation levy at the rate of 6% for availing certain services like online advertising on digital platforms such as Google, Facebook and Twitter among others. However, the burden to collect the tax is with the recipient of the service if it is an entity registered in India. Whereas, under the GST, the burden to collect the tax is on the service providers.

In FY2018-19, tax officials collected Rs 939 crore from this equalisation levy, that is 60% more than the amount collected in the last fiscal.

Finance minister Nirmala Sitharaman had raised the issue at G20 meeting in Osaka, Japan in June this year. She urged the world leaders to settle the issue by next year. However, the French experience will bolster Indian efforts to tax these tech giants on its own that have significant businesses presence in the country but pay little taxes.