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Uber may still be able to use a foreign payment gateway in India – Arkay & Arkay

Pallav Narang

by Pallav Narang, Arkay & Arkay (Chartered Accountants)

(note: This is a follow up to the Reserve Bank of India notification regarding the usage of foreign payment gateways for goods and services rendered within India)

This notification is significant, and there are already concerns in the tech community that this notification may affect the Indian businesses of service providers such as Uber, Amazon, Google Play, Apple App Store etc.

In our opinion a key distinction has to be made between goods and services provided in India as compared to those provided from outside of the country’s borders. As the notification clearly states, the provisions are in place for goods and services provided within the country. While the FEMA act does not define the place of provision of services, we can rely upon the service tax act, more specifically Place of Provision of Services rules, 2012 (“POP Rules”) for an accurate definition.

The general convention in indirect taxation is that a service should be taxed in the jurisdiction of its consumption. In the connected economy this distinction becomes difficult to apply as the services can be provided, performed, and received respectively at several distinct locations. Case in point being Google Ads where the services are provided by Google Ireland, performed by another Google subsidiary and consumed by an audience located across geographies.

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The POP rules envisage 12 distinct scenarios for taxation of cross border services, out of which rule 9 concerns specified services where the place of provision is the location of the service provider. Specified services in this case are:

  • Services provided by a banking company, or a financial institution or a NBFC, to account holders
  • Online information and database access or retrieval services
  • Intermediary services
  • Service consisting of hiring of means of transport, up to a period of one month.

Looking at the definitions of the highlighted services for which the place of provision of service shall be the location of the service provider, three points emerge:

  • Online information services are defined to include services pertaining to provision of data or information retrievable or otherwise, to any person in electronic form. Examples of such services include web based services, sale of digital content such as music, applications, news etc. This definition however does not cover sale and purchase of goods, telecommunication and consulting provided over the internet. Application stores, content stores, electronic subscription services etc would therefore be construed to be provided where the service provider is located. Using this definition, we can safely assume that such services would also be outside the purview of this notification issued by the RBI as long as they are being provided outside of Indian borders.
  • Further, an intermediary is defined as a person who arranges or facilitates a supply of goods or a provision of services or both between two persons without material alteration or further processing. In accordance with the definition an intermediary shall include a travel agent, tour operator, commission agent for a service etc. Should services such as Uber structure themselves in a manner to fit into the intermediary definition, they will have no problems in continuing with the use of foreign payment gateways for transactions sourced from India.
  • Interestingly, service of providing a hire or lease of transport is also covered by this rule. Means of transport for this purpose include land vehicles, vessels, and airplanes among others. Services provided by Uber can also be covered under this rule to ensure that the services are assumed to be provided outside India and therefore continue with the use of foreign payment gateways.

Given the wide coverage of this rule, it can therefore be construed that the services rendered by Uber, Google play and Apple App store cannot be said to be provided in India. Similarly, sale of digital content by Amazon.com will also not be considered to be a sale between two residents in India. The use of a foreign payment gateway for the use of such services should therefore not be a problem.

Read the entire piece here. Crossposted with permission.


Pallav Pradyumn Narang is a Chartered Accountant specializing in the Tax and advisory domains. He currently works as a Partner with Arkay & Arkay, Chartered Accountants, a Tax, Assurance and Advisory firm based out of New Delhi and has previously worked with BMR Advisors and Grant Thornton. He  tweets at @thepallav

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