Apple Tax Ripe to Pick?

The European Commission's decision to slap Euro 13 billion (unpaid) taxes on Apple Inc. has brought to fore the rampant use of favourable tax jurisdictions by multi-national companies to maximise profits.

India has also been grappling with innovative tax structures used by companies to avoid paying tax. In the past, questions have been raised about companies that structure their businesses in a way so as to pay minimum or no taxes.

So, should Indian authorities take a leaf out of the European Commission's book? Well, experts say there is no case in India for an Apple-like tax as of now. "We don't have that situation in India. This is about European Commission asking Ireland (an EU member) to withdraw tax concessions granted to Apple, and asking the company to pay full tax. It is not that Apple was not declaring profits in Ireland, but because of concessions, the tax rate was 0.005 per cent," says Akhilesh Ranjan, Joint Secretary, Foreign Tax and Tax Research, CBDT.

However, he conceded that there were 'some issues' with subsidiaries like Google India and Facebook India, and tax authorities are still trying to figure out if there was merit in these cases. Some petitions have also been filed before Indian courts against such 'errant' companies, including one by former BJP leader K.N. Govindacharya.

However, Ranjan says legally it will not be tenable because the current tax treaty rules require Indian subsidiaries to have physical presence in the country. "The permanent establishment rules have not changed as yet. Globally, a debate is on and we are hopeful that we can see some changes in the future."

Amit Singhania, Partner-Tax, Shardul Amarchand Mangaldas, says one cannot blame the companies for not paying enough taxes, because India does not have adequate legislations to tax revenues earned in India. However, Virag Gupta, counsel of Govinda-charya, says while the rules of permanent establishments are applicable for income tax, the issue is also about non-payment of service taxes. But Singhania argues that Indian subsidiaries provide services to their parent companies and taxes cannot be levied on export of services.

India has, however, made some progress to curb tax avoidance by overseas companies. The government has recently tweaked the tax treaty with Mauritius and regained the right to tax capital gains by foreign portfolio investors on the sale of shares of Indian companies. It has also tweaked the treaty with Cyprus to tax capital gains. In another move, it announced equalisation levy of 6 per cent on any payments made by Indian businesses for advertising in websites of foreign companies that are not permanent establishments.

While India was criticised, globally, for using retrospective taxation, more and more countries have opened new frontiers to address issues of tax avoidance by large MNCs. Last year, the UK had slapped 130-million Pound retrospective tax on Google, and the Internet search giant agreed to pay. Now, with Apple under EU tax scrutiny, Indian tax authorities feel their stand has been vindicated.