The additional charges are to cover the equalisation levy that was introduced by the Indian government last year, which led to pushback from US big tech lobbies.
Google will start charging foreign ad buyers for advertisements that are shown in India, even if the viewers of the ads are not Indian, the Economic Times first reported. Google confirmed the development to MediaNama, sharing the following statement:
From 1st October 2021, we’ll be adding a surcharge to the invoices we send to non-Indian customers whose ads are viewed in India. The surcharge is to cover part of the costs associated with complying with the Indian Equalisation Levy, which only impacts non-Indian advertisers. We will continue to pay all the taxes due in India and elsewhere.
Why it matters? Even as the Equalisation Levy faces pushback from the private sector and the US government, in the absence of a global tax deal that would define what steps countries can and cannot take to tax Big Tech companies, Google’s compliance with the legislation sets an important precedent that other tech companies may be forced to follow.
Pushback against the levy
The Equalisation Levy was introduced in April 2020 as a tax on foreign tech companies’ profits earned in India. This tax impacts the following:
- Sales to customers based in India
- Advertisements viewed in India, even if these ads are sold to customers abroad
- Sale of data on Indian residents to people residing elsewhere
The levy has faced pushback from tech giants, with big tech lobbies like the Internet Association, the US Council for International Business, and the Silicon Valley Tax Directors Group pushing back against the levy. The Office of the US Trade Representative, under both the Trump and Biden administrations, has acted against the levy. The above image, from the US Trade Representative’s report criticising the levy in January, shows the extent of taxation that western tech giants are exposed to due to the levy.
The USTR further criticised the tax for being unfair to American businesses. “U.S. “non-resident” providers of digital services are taxed, while Indian providers of the same digital services to the same customers are not. This is discrimination in its clearest form,” USTR said. The report said that since tech companies can be low margin businesses, taxing income instead of revenue — which it said violated accounting principles — had a harmful impact on US tech companies.
India has defended the levy as something that levels the playing field. It further reportedly opposes a G7 proposal in Europe to set a common digital tax of 15% for tech companies and expand the tax globally. An anonymous official cited by Moneycontrol said that India wanted to retain the “sovereign” right to set corporate tax rates. GST on digital commodity and service sales (which is a consumer-directed tax that does not include the equalisation levy) currently stands at 18%. The US has imposed and suspended (up till 180 days as multilateral negotiations take place) tariffs against Indian imports as retaliation against the levy.
- US Trade Representative Cites Indian Data Localization, Equalization Levy In Report
- US Proposes Taxing Indian Goods In Retaliation To Equalisation Levy Regime
- US Trade Representative Publishes Report Blasting India’s 2% Equalisation Levy