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Australian offshore tax: IT cos seek Commerce Ministry’s intervention

Indian IT companies have estimated that they could suffer cumulative losses up to $1 billion and a per annum impact of $225 million if the Australian government doesn’t withdraw its decision to tax the companies’ income from offshore services. The companies have urged the Commerce Ministry to intervene and resolve the matter.

“IT industry body Nasscom, in a recent meeting with Commerce Minister Piyush Goyal, pointed out that Indian companies had a sizeable presence in Australia and if the taxation issue was not resolved, it could have a greater negative impact in the future,” an official told BusinessLine.

Australia’s domestic law does not contain any provision to tax such services rendered overseas but the Australian Tax Office (ATO) has been using the Double Taxation Avoidance Agreement between the two countries as the basis for taxing Indian IT companies by treating their income as a royalty payment, according to representatives from Nasscom.

The ATO argues that Article 23 of the DTAA read with their International Agreements Act amends their domestic law to source such income to Australia and levy tax on it.

“IT companies requested the Minister that the matter could become a larger issue given the nature of IT services and should be resolved at the earliest. Since litigation process was complete and it went against Indian IT companies there was no legal recourse available to them. So, the matter must be settled bilaterally and the DTAA reviewed if required,” said the official.

Nasscom estimates put the total revenues from Australia market for Indian IT industry at around $2-3 billion. As much as half of this business was estimated to be served through offshoring to India.

Tax impact on offshore services income at the rate of 15 per cent will equal about $225 million annually, as per the estimate. Cumulative tax payouts for Indian IT companies could be over $1 billion if the Australian government takes 2012 as the cut off date, according to Nasscom.

Source: The Hindu