Globalisation And Taxation Challenges

Globalisation and increase in the trade partnerships between different countries has given rise to challenges on the front of taxation. India and the Unites States are at a critical juncture due to the plethora of digital services being consumed.

Speaking on the issue of cross Border transactions, Mukesh Butani, founder, BMR Legal said, "In this era of globalisation, the reach of India's financial footprint traverses multiple jurisdictions, accentuating taxation as a critical consideration. In an ecosystem riddled with constant and dynamic changes, India's tax system has gathered steam and gone from strength to strength as evident from GST collection. Within that, there is a class of transactions called cross border transactions. These have thrown up a plethora of challenges. There is a new dispute resolution mechanism getting evolved. During the last two financial years, India has improved its strategic trade between India and USA."

Trade between India and US has seen an all time high in 2023 of 200 billion dollars. It reflects the growing levels of cooperation between the two countries. Trade, in the context of goods is very important.

Reena Asthana Khair, Senior Partner, Kochhar and Co, said "In the current scenario, it is no longer enough to classify the goods and identify the rate and a tarrif. We are having a whole host of other rates which are dependent on the origin of goods. We are also having to work on origin because it is determining the rate. The change is on account of three things: Free trade agreements which provide for concessional rates, administration in US and India are extremely active on the unfair trade practice fronts and duties have also become a tool for strategic political handling. Recently, in 2028, India and the US imposed duties on each other. Origin is also an important factor as duty is charged on the value of the good. The basic principle of origin is that the goods originate from a country where substantial transformation takes place. Implementation of these rules is extremely difficult."

The basis for determination of origin is difficult because there is no extra territorial jurisdiction. The implementation is weak because there is not adequate cooperation between WTO countries.

Aseem Chawla, ASC Legal, Solicitors and Advocates said that, "India and US has had a transient measure where US will not impose sanctions. This year, the sanctions will be reviewed. In November 2024, India entered into an understanding. By June, it will be under review. Till such time, equalization levy will exist. For tax collection purposes, this levy has garnered a fair bit of revenue for India. For the moment, the levy seems here to stay. The agreed measure of the Courts giving relief in the nature of interim measure until there is a conclusion. In the judgments of Amazon, Google, they were given interim relief. DST seems here to stay."

L Badri Narayanan, Executive Partner, Lakshmikumaran and Sridharan Attorneys explained cross border taxation in terms of digital services. He said "We are consuming digital services from US without the US service provider having an establishment in India. Without an intermediary in India to facilitate. In tax, there is a notion that you need men and material to render services. This circumvents that, because you don't need men and material. Therefore the equalization tax. On the GST front, such services are classified under OIDAR. Now, any services mediated will be covered. The law has been amended, so that the element of human intervention becomes irrelevant. Businesses are consuming a lot of services. It is important to ensure that contracts are made in a manner that it takes everything into account."