Officials at the Large Taxpayer Office say that TikTok is claiming that its business is conducted through Google's Playstore and Apple's Appstore, and that since those stores pay VAT, it is not subject to double taxation.
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TikTok Pvt. Ltd., a multinational digital company registered with the local tax system, has not filed value-added tax (VAT) in Nepal in recent times. According to the data of the Large Taxpayers' Office, TikTok paid VAT in the fiscal years 2080/81 and 2081/82, but has not filed tax in the current fiscal year 2082/83.
TikTok is claiming that its transactions are conducted through Google's Playstore and Apple's Appstore and that double taxation is not incurred because those stores pay VAT. According to the head of the office, Kedarnath Sharma, the person (auditor) auditing TikTok's transactions in Nepal has argued that double taxation is incurred on the issue of VAT since transactions are conducted through Google Playstore and Apple's Appstore.
Government officials have said that TikTok's stance is being studied. The Large Taxpayers' Office has informed that documents of the official agreement between TikTok and Google/Apple have been requested to substantiate the company's claim. TikTok has not yet submitted any formal application or official letter to the Department of Internal Revenue regarding double taxation.
Responding to Kantipur, TikTok has committed to complying with Nepal's legal system. It stated that it is a platform registered in Nepal and the company is ready to fulfill its obligations related to VAT and Digital Services Tax (DST). 'We are working closely with the relevant government agencies on this issue,' TikTok said, 'We are confident that legal and policy clarity will be established soon.'
According to Nepal's Economic Act 2082, digital platforms with an annual turnover exceeding Rs 3 million must pay DST and VAT. If they do not do so, the tax office can assess tax based on the estimated turnover of the platform. Failure to pay VAT will result in a fine of 0.05 percent per day or Rs 1,000 per tax period (whichever is higher). In addition, 15 percent interest must be paid annually. If a taxpayer does not submit tax returns for 6 consecutive months, the tax office can make the name of such taxpayer public. The Large Taxpayer Office has the authority to suspend the registration of companies that do not submit details and to withhold any amount due to them.
Prakash Poudel, Director of the Policy Analysis and Management Division of the Inland Revenue Department, clarified that TikTok's current non-payment of VAT cannot be called 'non-compliance' or non-payment of tax. According to him, TikTok is still registered in the tax system and there is some technical and policy ambiguity in the tax payment process. 'This problem of double taxation is not only a concern of TikTok or Nepal, but is being raised by multinational companies worldwide,' he said. 'The possibility of double taxation on digital services is being discussed at the international level under the Inclusive Framework of the Organization for Economic Cooperation and Development (OECD). It cannot be said that such a possibility cannot exist in Nepal as well.'
Referring to the OECD's 'Base Erosion and Profit Shifting' (BEPS) guidelines and the 'Two Pillar Framework', Poudel said that if all countries in the world move to a similar system in the future, Nepal may also have to abandon the current 2 percent digital services tax. 'However, this is a matter that depends entirely on the policy decision of the Government of Nepal,' he said, 'Currently, the principle of Nepal's tax administration is that if a service is consumed in Nepal and its source of income is Nepal, Nepal should be able to tax it. This is a matter of the country's tax sovereignty.'
So far, Nepal is not a member country or observer of the OECD. However, just last month, Nepal became the 173rd member country of the OECD's 'Global Forum on Transparency and Exchange of Information for Tax Purposes'. With its membership, Nepal will now have access to the financial statements of taxpayers around the world. Information on Nepal's taxpayers will also be exchanged with other member countries. Its main objective is to control tax evasion in ‘transfer pricing’ and ‘cross-border’ transactions.
Nepal implemented the ‘Transfer Pricing Directives’ last year and since a large amount of data and information is required for that, Poudel said that it was necessary to become a member of the OECD Global Forum. Earlier, if a multinational company or taxpayer falsified its income or expenditure details abroad, it would be difficult for Nepal to verify its veracity, but now it will be easier to ‘track’ such transactions through this system.
The Transfer Pricing Directive was prepared mainly to systematize transactions between multinational companies. The directive was prepared based on the OECD’s Transfer Pricing Guidelines. In Nepal, Section 33 of the Income Tax Act, 2058 BS, has made provisions regarding transfer pricing. In particular, foreign companies operating in Nepal or branches of Nepali companies located abroad must follow this rule while importing or exporting goods or services. In the era of the digital economy and big tech companies, pricing intellectual property and digital services can help the government collect the right taxes, experts say.
With multinational companies like TikTok claiming ‘double taxation’ over the digital services tax and VAT being levied by Nepal, Nepal has opened up the way for a fact-checking session at the ‘Global Forum’. ‘We may find it easier to express our views on the formulation of international tax policies and to conduct policy and technical analyses that arise when taxing digital companies,’ say officials from the Revenue Department, ‘However, the issue raised by TikTok is a policy issue. This is something that the Nepal government will have to resolve itself.’
