Professional Documents
Culture Documents
Rahul Garg
Agenda
Policy Issues : E-Commerce and BPO Cross Border Tax Issues Harmonization of Policy Issues E-Commerce / BPO and WTO
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Agenda
Policy Issues : E-Commerce and BPO Cross Border Tax Issues Harmonization of Policy Issues E-Commerce / BPO and WTO
PricewaterhouseCoopers
Importance
Competitive advantage - companies can by-pass traditional links in the supply chain.
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- future legislations
- infrastructure promises by Government Non-redressal will result in i. Decline in Shareholder confidence / risk perception ii. Reversal in outsourcing to India The Need
Technology is dynamic while government legislations are dated quick response from the regulator is required; or
Deregulate entirely
FICCI Round Table on E-Commerce
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Authentication
Privacy of Information
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Validity of Online Contracts Adopted the UNCITRAL Model Law provision vide Section 4 of the Information Technology Act (IT Act) 2000.
Authentication
Digital Signatures is legally recognized under the IT Act.
Privacy of Information
Encryption and Decryption technology available subject to DoT permission.
FICCI Round Table on E-Commerce
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Digital Signatures
Encryption
Privacy
IPR Protection
a a a a
a a
X
a a
Not Available
a a a a
X
U.K
Singapore
Malaysia
India
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How should the contract be structured to obtain tax Benefits and minimize regulatory Operational or other intervention of Foreign government?
Is the customers data entitled to legal privacy and intellectual property protection?
What restrictions might apply to transborder flows of data, personnel, goods and other products?
FICCI Round Table on E-Commerce
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Agenda
Policy Issues : E-Commerce and BPO Cross Border Tax Issues Harmonization of Policy Issues E-Commerce / BPO and WTO
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India.
Service Tax Currently, the services exported by a call center / BPO are not chargeable to service tax.
R & D Cess Act 1986 Section 3 levies cess @ 5% on payments made for import of technology.
Tax Exemption vide Section 10A/10B is available till 2009 to service exporters, call centers and BPO.
FICCI Round Table on E-Commerce
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- Conclusion of Contract?
- Situs of Delivery? - Situs of Breach? - Sharing of Taxes?
iii. Characterization of Income - Business Profits - Royalty - Fee for Technical Services (FTS)
Permanent(?) Establishment(?) ?
FICCI Round Table on E-Commerce
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Business Profits - Electronic ordering and downloading of digital products (Majority View)
FTS web site hosting, especially where host provides back-up and secure access services Indian Model (OECD Model treats this as Business Profits).
FICCI Round Table on E-Commerce
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Concerted effort of representatives from all nations must evolve principles of sharing tax proceeds.
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Online contract
Situs of Breach?
Which jurisdiction will have adjudication powers in case of breach of tax laws?
FICCI Round Table on E-Commerce
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Tax Issues - PE
OECD Model (Article 5) Fixed place of business through which the business of an enterprise is wholly or partly carried on. Article 5 para. 1 PE presupposes a fixed place of business (Fixed specific fixed
long term connection between place of business and a specific part of earths surface.
Indian Position - High Powered Committee (HPC) set up by CBDT in December 1999 submitted the following recommendations: i. The existing concept of PE should be abandoned. ii. Existing principles (Residence based taxation and Source based taxation) do not ensure (in the E-commerce world): - Certainty of tax burden - Equilibrium in sharing of tax revenue between two countries iii. Alternative to PE should be developed by OECD / UN
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HPC has also examined the 28 categories of payments in the light of provisions of the ITA and treaties with UK & USA as illustrations (Judicial pronouncements also considered) Comparison of views of TAG and HPC (under ITA and treaties) in respect of 28 payments considered by TAG
Concurred Concurred under treaty provisions 1 Differed Total
15
12
28
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Nature of Payment
Payment for purchase of Software Software licensing payment made to non resident o/s India for business in India Rendering of services (including training) Connectivity charges
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Attribution of Income
Marketing function (comprising 50-people strong sales force) constitutes 15% of the physical activity in brick-n-mortar transaction whereas in ecommerce environment the physical sales force becomes redundant
Contention 1 : Mode of undertaking activity is not relevant for the purpose of attribution of income and hence, marketing still comprises 15% of the total transaction activity - income and profits attributable would remain the same Contention 2 : Cost of marketing function goes down and hence while income attributable to it may remain the same, profits in absolute terms may go up Contention 3 : Overall significance of the marketing function in the transaction reduces considerably and therefore the percentage of profits attributable to such function should also go down
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Agenda
Policy Issues : E-Commerce and BPO Cross Border Tax Issues Harmonization of Policy Issues E-Commerce / BPO and WTO
PricewaterhouseCoopers
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on in traditional manner.
Efficiency full protection to taxpayer against double taxation, and facilitating international flow of trade, investment and technology.
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- Quick MAP
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Facilitate Operations
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Improve Understanding
Other countrys processes Global business Practices Technology impact New E-Money System
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Agenda
Policy Issues : E-Commerce and BPO Cross Border Tax Issues Harmonization of Policy Issues E-Commerce / BPO and WTO
PricewaterhouseCoopers
Copyright Protection digital networks has changed the way that works and other protected materials are created, produced, distributed and used. Some of the measures taken to address this issue by WIPO include: i. WIPO Copyright Treaty ii. WIPO Performances and Phonograms Treaty
Protection of Trademarks concerns in this regard include applying the territorial nature of trademarks to internet, protection of well-known trademarks and the relationship between trademark and Internet Domain Names. To address the latter
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The General Agreement on trade in Services (GATS) treaty provides for 4 modes for supply of services: Mode 1 Cross border supply of services a call center in India providing back office support to British Airways. Mode 2 Consumption Abroad Tourism would ideally fit into this category Mode 3 Establishment of Commercial Presence A US bank starting a branch in India. Mode 4 Movement of Natural Persons An Indian software professional working on site of a client based in US.
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Mode 1 Cross border supply of services Measures like the New Jersey Bill in US
typically defeat the objective under this mode of supply of services, which in turn has serious repercussions on the Indian IT sector. Though the Bill has been stalled in the New Jersey State Assembly, adequate steps under negotiations should be taken by India preventing such precedents from occurring.
Mode 4 Movement of Natural Persons GATS quotas for visas over and above the visa currently being issued on a discriminatory basis. 1. Facilitates free movement of professionals in the WTO member countries. 2. Impetus to the Indian IT sector considering the competitive advantage it holds in the form of cheap, highly skilled labor force.
FICCI Round Table on E-Commerce
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International Companies still optimistic about India. Domestic Companies and IT professionals inclination to embrace technology.
Soft infrastructure (human side) open to accept latest technology Hard infrastructure (connectivity, networking) still lacking
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Thank You
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