Oct 17, 2020
UN proposes digital tax at 3-4% on gross basis, provides net-basis option
The United Nations (UN) has released the revised draft of its proposal for taxation of a digitised economy and has invited comments. It contains two options. Under the gross basis of taxation, the UN drafting committee has recommended a withholding rate of 3% or 4%, the final rate is to be decided by the countries.
An option is made available to multinational enterprises (MNEs) for being subject to tax on a net basis. Here the taxable profits would be computed by determining the global profit rate of a MNEs in-scope activities, applying it to the company’s local sales revenue and attributing 30% of that to the market jurisdiction, where the customer base lies.
A few days ago, the Organisation for Economic Co-operation and Development (Oecd) had released the approved blueprints of Pillar One - dealing with digital tax and Pillar Two - dealing with introduction of a minimum corporate tax rate.
India was the first country to introduce a tax on the digital economy by the Finance Act, 2016. An equalisation levy at 6% was introduced on certain advertising and related services earned by non-resident entities. Its scope was expanded by the Finance Act, 2020 to cover non-resident e-commerce operators.