India to take part in IT firms’ tax issue with Australia

India is likely to ask Australia to amend its domestic law swiftly for the resolution of the tax issue being faced by Indian IT companies under the Double-Taxation Avoidance Agreement (DTAA).

As per reports on national media, the new Australian trade minister Don Farrell will visit India in September for the joint ministerial commission meeting with commerce and industry minister Piyush Goyal.

Also, India is expected to ask Australia to amend its laws, in accordance with a formal pact reached between the two sides in April, and stop taxing the offshore income of Indian firms providing technical support there.

It is to be noted that both sides have already acknowledged the need for an early ratification of the interim trade deal, or the India Australia Economic Cooperation and Trade Agreement (ECTA), which was signed in April.

After implementation, the law will correct cost anomalies in the 1991 DTAA between the two countries. It will reportedly also enable Indian IT and ITeS players to substantially scale up their operations in Australia. The anomaly is expected to have cost Indian IT companies about USD 1.3 billion since 2012, according to an industry estimate.

Canberra has been taxing income generated from offshore IT services, using the provisions of the India-Australia DTAA, rendered from India as royalty, even when the same income is being taxed in India as well.

Notable IT firms such as Infosys, TCS, Wipro, Tech Mahindra Satyam and HCL have stepped up operations in Australia since 2000. However, this taxation continues to be an issue for them. Immediately after it is resolved, the firms can significantly ramp up business there.

It is to be noted that the Indian IT services industry has witnessed rapid growth by 2.7 percent in FY 2020-21 to USD 99 billion, according to Nasscom. The broader industry, including e-commerce, business process management and global back offices, grew 2.3 percent to USD 194 billion in FY 2020-21. According to RBI data, Australia and New Zealand together accounted for 3.1%, or USD 4.2 billion, of India’s software services exports in FY 2020-21.

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