SITUATION • A orders something at B • B has to deliver the order to C • D owns B In which country would the income received by B would be taxed?
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SITUATION• A orders something
at B
• B has to deliver the order to C
• D owns B
In which country would the income received by B would be taxed?
UNDERSTANDING AMAZON
AMAZON.COM INC – AMZN – HOLDING COMPANY IN USA
AMAZON SELLER SERVICES PRIVATE LIMITED - AMAZON.IN
AMAZON INTERNET SERVICES PRIVATE LIMITED - AWS Hosting
AMAZON IT SERVICES (INDIA) PRIVATE LIMITED – Development and Maintenance
AMAZON DEVELOPMENT CENTRE (INDIA) PRIVATE LIMITED –Development and Maintenance
AMAZON ONLINE DISTRIBUTION SERVICES PRIVATE LIMITED -PaywithAmazon - Payments
AMAZON TRANSPORTATION SERVICES PRIVATE LIMITED - Logistics
TAXATION OF E-COMMERCE START-UPS
In the Indian Context
OUTLINE
Understanding the e-Commerce
BusinessTaxation
Planning the Start-up
UNDERSTANDING THE E-COMMERCE BUSINESS
E COMMERCE DEFINITION – OECD 2009
An e-Commerce transaction is the sale or purchase of goods
or services, conducted over computer networks by Automated
methods.
UNDERSTANDING THE BUSINESS MODEL OF E-COMMERCE
Understanding the Business and Services
offered
Modus Operandi of the
business
Communication and other related
technologies
ISSUES FOR DIRECT TAXATION OF AN E-COMMERCE BUSINESS
Determination of the “economic attachment”
• Situs of the Business
Taxable Jurisdiction
• Inclusion of Cyberspace?
Determination of Permanent Establishment in case of a non-resident
Legal Difficulty –
• Contracting States are different, Hence which law to be applied?
Nature of Contract –
• Sale of Goods/Sale of Service
• Rental of Goods/Service
EXAMPLES OF E-COMMERCE START-UPS
India
n Sta
rt-u
ps
Fore
ign
Sta
rt-u
ps
TYPES OF E-COMMERCE BUSINESS
E -Commerce
E-Advertising
• Classifieds
• Advertisements
E-Sales
• Online Marketplace
E-Delivery
• Pure digital content
• Online Services
TAXATION
EXAMPLES OF E-COMMERCE INCOMES
Business Income
• Web/Email Hosting Services (GoDaddy, BigRock)
• ITO v/s People Interactive (I) P Ltd
• Network Connectivity Services (Cloudflare)
• Cloud Services (Google Apps)
• Electronic Services (Oyo Rooms, Trip Planning, Ola Cabs)
• Commission and Listing Charges (eBay, Amazon, Flipkart)
• Advertisement Charges (Google AdWords)
EXAMPLES OF E-COMMERCE INCOMES
Royalty
• License of off-the-shelf Computer software
• Selling or Renting of Copyrighted digital media e.g. Video, Song, Images etc.
Fees for Technical Service (FTS)
TAXATION
TDS Provisions
• Resident
• Non Resident
Business Income
Royalty
TDS PROVISIONS
• Provisions of Chapter XVII
Resident
• Section 195 – Payment to Non Resident or Foreign Company @ the prescribed rates in force (40%)
• Royalty @ the prescribed rates in force (10%)
Non Residents
TDS Deduction Issues
• International Transactions
• Friendly Procedural Laws
TAXATION
Resident
Worldwide income
Non Resident
Income Earned in India (Section 9)
Business Income (Permanent
Establishment)Royalty
TAXATION OF E-COMMERCE BUSINESS AS A RESIDENT
Global Income Taxed in India at
30% + SC + CESS
TAXATION OF E-COMMERCE BUSINESS AS A NON-RESIDENT
Indian Income in the nature of Royaltywould be taxed in
India at 10% (Section 115A)
Indian Business IncomeTaxed in India at
40% + SC + CESS or DTAA Rates whichever
is favourable
TAXATION OF E-COMMERCE BUSINESS AS A NON-RESIDENT
A
U
T
O
M
A
T
E
D
DETERMINATION OF A PERMANENT ESTABLISHMENT FOR AN E-COMMERCE BUSINESS
Entity is dependent on Foreign
Company/Non-Resident
Presence of Continuous Business
in India
Capacity to Contract
Income is Attributable to India
Fixed Virtual
Galileo International and Amadeus Global Travel v DCIT (Delhi Tribunal)
SITUATIONS FOR A PERMANENT ESTABLISHMENT
Because of the Intangible nature of transactions, the existing tests laid down for determination of Permanent Establishment does not suffice
Situation 1: Business Functions are Carried out on own Website/ApplicationOwn Server / Leased Server Operations
Website is used for conducting business operations on a large scale.
Physical Location of server will be constituted as “Fixed place of Business”
Physical Location of Server constitutes Permanent Establishment
SITUATIONS FOR A PERMANENT ESTABLISHMENT
Situation 2 - Advertisement of Products/Services in a website or business website Generally in the form of a Website Advertisement Banner
Mere Advertising
Server of the website does not constitute Permanent Establishment
ITO v/s Right Florists Pvt. Ltd (Kolkata Tribunal) and in the cases of Advertisement Income for Google and Yahoo
Situation 3 - No physical establishment in the Host Country. Website may constitute a Virtual Permanent Establishment
Delhi Tribunal in the cases of Galileo International and Amadeus Global Travel vs DCIT
WHAT HAPPENS IF IS A NON - RESIDENT AND HAVING NO PHYSICAL ESTABLISHMENTS IN INDIA?
http://www.whois.com/whois/olacabs.com
https://who.is/nameserver/ns-1486.awsdns-57.org/
The domain olacabs.com is used for it’s mobile app background processing.
LOCATION OF SERVERS (E.G. OF AMAZON WEB SERVICES)
E-Commerce capitalized Cloud Computing Methods. Multiple Instances of
Servers can be created and removed within few seconds at any location in the
world.
PLANNING THE START-UP
ROLE OF THE ENTREPRENEUR –STRATEGIZING THE START-UP
• Define the products and services
• Define the Business Processes
• Define the Corporate Structure
• Define the Data Flows
• Define Locations for servers and their roles in Business Operations
• Implement a Taxation framework
• Execute the Business
• Taxation Laws (Direct and Indirect)
• Security, Privacy, IP, Customs, Excise, FDI, FEMA
• Corporate Structure
• E-Commerce Infrastructure Architecture
• Products
• Supporting Processes
BusinessBusiness
Architecture
Local LawsInternational
Laws
ROLE OF THE ENTREPRENEUR –STRATEGIZING THE START-UP
ROLE OF A CA - TAX CONSULTANCY OBJECTIVES Characterisation
of Income
Identification of the existence of
Permanent Establishment
Tracing the start and end
point of a transactionReviewing the
documentation to understand the nature
of the contract
Removing legal difficulties of
tax laws of various nations
Identification the taxable jurisdiction
FINAL DESTINATION
SOURCES
www.icai.org
www.nishithdesai.com
www.taxmann.com
www.ey.com
www.kpmg.com
www.caclubindia.com
www.rashminsanghvi.com
www.oecd.org/india
aws.amazon.com
who.is
whois.com
olacabs.com
QUESTIONS AND THANK YOU
Bharath Rao
Latha Kamath
The information contained in this presentation is of a general nature and is not intended to address the circumstances of
any particular individual or entity. The presenters disclaim any liability to any person in respect of anything as the
technical contents in this presentation is solely meant for communication of information. One should act on information
only with appropriate professional advice and after a thorough examination of the particular situation.
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