The additional fees are intended to cover the countervailing levy introduced by the Indian government last year that caused a setback for US big tech lobbies.
Google will charge foreign ad buyers for ads served in India, even if the viewers of the ads are not Indian, the Economic Times first said reported. Google confirmed the development to MediaNama and made the following statement:
Starting October 1, 2021, we will charge an additional fee for invoices we send to non-Indian customers whose ads are running in India. The surcharge is intended to cover part of the costs related to compliance with the Indian countervailing levy, which only affects non-Indian advertisers. We will continue to pay all taxes due in India and elsewhere.
Why is it important? While the countervailing levy is being pushed back by the private sector and the U.S. government, Google’s compliance with the law in the absence of a global tax treaty that lays down what steps countries can and cannot take to tax big tech companies, unites important precedent that other technology companies might be forced to follow.
Pushback against the levy
The countervailing levy was introduced in April 2020 as a tax on the profits of foreign technology companies generated in India. This tax has the following effects:
- Selling to customers based in India
- Ads in India even if these ads are sold to overseas customers
- Selling data on Indian residents to residents elsewhere
The tax has been pushed back by tech giants, with major tech lobbies such as the Internet Association, the US Council for International Business and the Silicon Valley Tax Directors Group pushing against the tax. The Trump-Biden administration’s office of the US Trade Representative has taken action against the levy. The image above, taken from the US Trade Representative’s report criticizing the levy in January, shows the level of taxation Western tech giants are facing as a result of the levy.
The USTR continued to criticize the tax as being unfair to American companies. “Non-US” digital service providers are taxed, while Indian digital service providers for the same customers are not taxed. That is discrimination in its clearest form, ”said USTR. Because tech companies can be low-margin companies, the report said taxing revenue instead of revenue – which allegedly violates accounting principles – is detrimental to U.S. tech companies.
India has defended the levy as something that levels the playing field. It also reportedly rejects a G7 proposal in Europe to set a 15% common digital tax for tech companies and to expand the tax globally. An anonymous official quoted by Moneycontrol said India wants to retain “sovereign” right to set corporate tax rates. GST on sales of digital goods and services (a consumer-facing tax that does not include the countervailing charge) currently stands at 18%. The US has imposed and exposed (up to 180 days in multilateral negotiations) Customs duties on Indian imports in retaliation for the levy.