Trending Technologies And India Tax Landscape

Broadcasting industry is witnessing a shift from channel and TV loyalty to program loyalty and device disloyalty. With the aid of high-speed internet connection, consumers’ desire to be entertained anytime, anywhere, and on any device is now possible. Consumers are now embracing trending technologies in broadcasting like internet protocol television (IPTV), over the top services (OTT), cloud-based broadcasting, etc. Growth of the broadcasting sector is fronting into creation of plethora of new business models which has resulted into operational business issues. Along with the operational issues, one of the critical aspects is the resultant new tax issues arising out of rapidly evolving tax laws in India. Lately, couple of tax issues have emerged which would have far-reaching implications on the digital economy. India is not only embracing new/innovative technologies but is also at the forefront in adopting new tax measures which are aligned with International Tax Rules. The reason for implementing these new measures is to tackle the tax evasion and avoidance strategies and creating a level playing field between resident and non-resident companies.

After introducing tax in the form of 6 percent equalization levy on gross India advertising revenue earned by foreign digital platforms or service providers, and then an 18 percent GST on services rendered by foreign digital platforms and qualifying as online information and data access retrieval (OIDAR) services, the government has now introduced the concept of significant economic presence (SEP) under the domestic tax laws, keeping in perspective the global discussions on this concept under the base erosion and profit shifting (BEPS) action plan of the Organization for Economic Co-operation and Development (OECD). The concept of SEP gives importance to the situs of buyer rather to the seller. SEP can be triggered based on the revenue generated and users from India without having physical presence in India. This is an important development for foreign broadcasting players which involves considerable digital interaction with users and enables download of content in India without having physical presence. However, a moot question which arises is how one would keep a tab on transactions taking place from India or number of users accessing platform from India. One can always take shelter under applicable tax treaty till similar changes are introduced in the same. It would be interesting to see how this concept would be dealt in tax treaties.

Another change in the domestic tax law is widening of definition of business connection to include business activities carried on by non-residents through agents in India who habitually plays the principal role leading to conclusion of contracts. This would bring under tax purview, the activities which are closely and intimately connected to the conclusion of contracts, viz., negotiation, marketing, information gathering etc. Indian entities that carry out marketing/technical support service for foreign entity and could also play the sales support role for the foreign OTT/IPTV players in relation to its Indian subscribers/users needs to closely look at implications of this new amendment vis-à-vis any applicable tax treaty. Tax aspects in relation to business model structuring between related entities is an age old debatable issue therefore it is essential to revisit the business model and determine the exact role played by the captive entities.

Even broadcasting sector is not untouched from the mitts of taxation of digital economy. While there is no doubt that these technologies of modern day broadcasting have brought the world closer, but it has created host of new hurdles and challenges on taxation front as well. While some of the issues are addressed by the current developments in tax regime, other challenges would be answered in time to come as more innovation finds its way in the untapped Indian markets.

Ably supported by Surbhi Jain and Tejas Kapasi, PwC