Why Uber, Google Play and Amazon should not lose sleep over RBI's latest diktat
Given the wide coverage of this rule, it can therefore be construed that the services rendered by Uber, Google play and Apple App store cannot be said to be provided in India. Similarly, sale of digital content by Amazon.com will also not be considered to be a sale between two residents in India. The use of a foreign payment gateway for the use of such services should therefore not be a problem.<br />
While the RBIon 22 August came down heavily on the use of India-based credit cards for purchase of goods and services received without the use of additional authentication/ validation process, which is only possible through Indian payment gateways, will the move really impact serviceslike Uber, Amazon and Google Play?
The RBI had earlier specified regulations for the use of such two-factor authentication methods on all transactions where, as per the notification, "no outflow of foreign exchange is contemplated".
As Firstbiz reported earlier, "the central bank said that it had come to their notice that such transactions were taking place and resulting in foreign exchange outflow were not acceptable as it was a violation of directives under the Payment and Settlement Systems Act 2007 and the requirements of the Foreign Exchange Management Act, 1999. The central bank also said that if a credit or debit card was issued by a bank in India and used for making purchases in India, the transaction must be on the records of a bank in the country and it should be settled only in rupees."
While the directive comes into effect immediately, the RBI has allowed existing businesses time until 31 October to ensure compliance failing which they could face legal action.
According toPallav Pradyumn Narang, Partner with Arkay & Arkay, Chartered Accountants, A Tax, Assurance and Advisory firm based out of New Delhi, thenotification is significant and there are already concerns that it may affect the Indian businesses of service providers such as Uber, Amazon, Google Play, Apple App Store etc.
However,he says a key distinction has to be made between goods and services provided in India as compared to those provided from outside of the country's borders.
Here's why Narang thinks these service providers should not be losing sleep over the RBI notification.
As the notification clearly states, the provisions are in place for goods and services provided within the country. While the FEMA act does not define the place of provision of services, we can rely upon the service tax act, more specifically Place of Provision of Services rules, 2012 ("POP Rules") for an accurate definition.
The general convention in indirect taxation is that a service should be taxed in the jurisdiction of its consumption. In the connected economy this distinction becomes difficult to apply as the services can be provided, performed, and received respectively at several distinct locations. Case in point being Google Ads where the services are provided by Google Ireland, performed by another Google subsidiary and consumed by an audience located across geographies.
The POP rules envisage 12 distinct scenarios for taxation of cross border services, out of which rule 9 concerns specified services where the place of provision is the location of the service provider. Specified services in this case are:
1. Services provided by a banking company, or a financial institution or a NBFC, to account holders
2. Intermediary services
3. Service consisting of hiring of means of transport, up to a period of one month.
Looking at the definitions of the highlighted services for which the place of provision of service shall be the location of the service provider, three points emerge
1. Online information services are defined to include services pertaining to provision of data or information retrievable or otherwise, to any person in electronic form. Examples of such services include web based services, sale of digital content such as music, applications, news etc. This definition however does not cover sale and purchase of goods, telecommunication and consulting provided over the internet. Application stores, content stores, electronic subscription services etc would therefore be construed to be provided where the service provider is located. Using this definition, we can safely assume that such services would also be outside the purview of this notification issued by the RBI as long as they are being provided outside of Indian borders.
2. Further, an intermediary is defined as a person who arranges or facilitates a supply of goods or a provision of services or both between two persons without material alteration or further processing. In accordance with the definition an intermediary shall include a travel agent, tour operator, commission agent for a service etc. Should services such as Uber structure themselves in a manner to fit into the intermediary definition, they will have no problems in continuing with the use of foreign payment gateways for transactions sourced from India.
3. Interestingly, service of providing a hire or lease of transport is also covered by this rule. Means of transport for this purpose include land vehicles, vessels, and airplanes among others. Services provided by Uber can also be covered under this rule to ensure that the services are assumed to be provided outside India and therefore continue with the use of foreign payment gateways.
Given the wide coverage of this rule, it can therefore be construed that the services rendered by Uber, Google play and Apple App store cannot be said to be provided in India. Similarly, sale of digital content by Amazon.com will also not be considered to be a sale between two residents in India. The use of a foreign payment gateway for the use of such services should therefore not be a problem.
Pallav Pradyumn Narang tweets at @thepallav
Apple pays millions after student's private photos were posted online by iPhone repair technicians: Report
The incident took place in 2016, at a repair facility run by Apple supplier Pegatron in California.
Apple also announced the Digital Legacy Program which lets users designate a 'Legacy Contacts' who can access their account and personal information in the event of their death.
Apple reportedly aims to provide a non-invasive solution to check blood sugar levels without pricking the skin.