As experienced by each of us today, digital technologies, big data, cloud Computing and internet of things has changed lives in the 21st century altogether. Internet coupled with proliferation of hi-tech mobile phones and personal devices in this age has been “all-pervasive”. Digitization has led to emergence of ‘Digital economy’ giving rise to new businesses altogether such as e-commerce companies (Amazon / Flipkart / Airbnb / Makemytrip / Uber / Ola, etc.), social media companies (such as Facebook / Instagram), Internet based services and analytics companies (such as Google), Digital Vallets (Paytm) and so on. These businesses at times have completely disrupted conventional businesses and have challenged the manner in which conventional businesses are done.
In the beginning of digital era, existing tax mechanisms failed to tax such transactions especially those undertaken by non-residents. Taxing digital economy posed several queries such as constitution of servers/ websites as PE, valuation of digital transactions etc. Considering the pace at which digital economy is growing, there has been a global movement towards bringing the digital economy to tax.
The digital domain would include apps, mobile computing technologies, e-commerce stores, online software based service providers, cloud computing technologies, crypto currencies etc.
Tax treaties impose tax obligations on non-residents either on the basis of profits that could be attributable to permanent establishments as defined under the treaty or by characterization of income as royalty/ fees for technical services. However, taxation of online transactions, where for performance of service physical presence is not required, is still in early stages and not much jurisprudence is available.
In this regard, we are pleased to share our Whitepaper on “Taxation of Business in Digital Era”, wherein we have tried to provide the current perspective of the taxation concerning digital transactions.
We hope you will find the same useful.