In a major relief for IT giants like Wipro, Infosys, TCS and Tech Mahindra, India and Australia signed a treaty that discontinues taxing on the offshore income of Indian firms providing technical services in the island country.
India and Australia, on April 2, 2022, signed an Economic Cooperation and Trade Agreement (ECTA) wherein Canberra has agreed to amend their domestic laws, an anomaly in the Double Taxation Avoidance Treaty (DTAA), 1991 between the two countries and enable Indian IT and ITeS players to scale up their operations in Australia. The anomaly had a huge burden on the Indian IT companies of paying taxes close to about $1.3 billion since 2012.
The Australian government was taxing under the provisions of the Double Taxation Avoidance Agreement, under the royalty head from Indian IT companies for offshore work done in India and these companies had to pay tax in India for the same income. This led to losses of almost $1 billion for the $220 billion IT industry over the last ten years.
The treaty signed doubles the bilateral trade for the next five years which is from $27 billion to $45-$50 billion. The treaty has also eased the norms for collaboration and talent sharing between the two nations.
Reacting to the treaty signed, which has given a breather to the IT industry, Wipro chairman Rishad Premji tweeted thanking the Indian government, he tweeted, “Thank you so much to the Government of India and Nasscom for resolving the critical and long-standing Australia tax issue. The perseverance paid off!”
Nasscom President Debjani Ghosh also tweeted, “High skilled talent mobility is the most critical success and imperative to a thriving global digital economy. Super stoked and proud to see both India and Australia lead is the way!. Kudos @narendramodi @PMOIndia @PiyushGoyal for setting the tone for the world!
According to the IT industry body estimates, the Indian IT sector’s annual revenue from the Australian market is about $2-$3 billion. Of the total revenue, about 50 percent of this business is estimated through services that are offshoring to India. The impact of tax on the offshore services income was levied at 15 percent which is about $225 million annually which is around Rs 1,507 crore.
From the financial 2011-12 to date, the cumulative impact has been estimated at over $1 billion for India. In a statement, Nasscom said, “In addition, the recognition of talent mobility with the four-year temporary work permits, the spouses and dependent visas will help enterprises in both countries to leverage the digital talent skills, to build digital capabilities at scale and to collaborate through innovative startups”.
Tech Mahindra had lost an appeal against the tax levy in an Australian court way back in 2018. “Australia has now agreed to amend its domestic taxation law to discontinue taxation of offshore income of Indian firms which are providing technical services to the country”, Piyush Goyal, Union Minister for Commerce and Industry, had said.
The Union Minister Piyush Goyal also tweeted, “Austrailer for a bigger show. #IndAusECTA is a harbinger of more to come. Read my write-up in @EconomicTimes where I explain how India’s earnest desire & industry confidence are reflected in the two recently sealed trade deals.
Prabhakar KS, founder and chief executive of Shree Tax Chambers, also tweeted, “Finally, Much awaited..!! India – Australia Economic Cooperation & Trade Agreement (IndAUS – ECTA) Signed on 02.04.2022. Wherein Canberra has agreed to amend its domestic tax law to stop the taxation of offshore income of Indian firms providing Technical services in Australia. In other words, a great relief for TCS, Wipro, Infosys, etc… Thank you @PiyushGoyal @DanTehanWannon MP
