ET BureauMumbai | Bengaluru: Ride hailing company Uber’s decision to move its domestic business operations to India from the Netherlands was to simplify tax calculations and payments reconciliation for its Uber for Business (UFB) and UberEats entities, multiple corporate clients and restaurants told ET.
Earlier this month, Uber restructured and moved its entire India business – which partially operated from Netherlands under Uber BV – to the India-domiciled Uber India Systems.
“For foreign companies (like ours) to do business in India scalably, they need to localise at every level,” an Uber executive said, requesting anonymity. At least three of Uber’s corporate clients told ET that they had earlier faced issues regarding tax deductions to Uber's foreign entity, resulting in delayed payments to the ride hailing app. The old business structure had also been a roadblock in getting new large clients on board, one of the people said.
UFB is an entity that companies use to handle their employee travel needs. It forms close to 1% of Uber's revenue globally, the comapny disclosed in its IPO prospectus earlier this year. In India, however, it has been aggressively marketing the product over the last one year.
“For corporates like us, payments to a foreign entity are treated as a forex outgo for which the government demands we deduct 43% TDS on the transaction. Uber says this is inaccurate given the tax treaty between India and the Netherlands.
While this is technically fair, the fear of the liability coming back to us makes this proposition unviable,” a corporate client said.
If payments are made to a foreign entity and the tax position is unclear, Indian clients typically tend to be conservative (given the severe consequences like recovery of tax from the payer, levy of interest, initiation of penalty proceedings, disallowance of expenses, etc.), and in the absence of a certificate from the tax authorities, they may seek to deduct tax at 43%, said Pritin Kumar, corporate and international tax partner with Deloitte.
On the other hand, if the payment is to an Indian entity, the applicable tax rate ranges from 2% to 10%, depending on the exact nature of the contract, he said.
“Companies are withholding tax... as TDS is a vicarious liability and they run the risk of the expenditure itself not being allowed as a deduction,” said Hitesh Gajaria, head of Tax at KPMG India.
On the restaurant front, too, Uber had faced similar feedback from large chains where the accounting and legal processes are standardised. “It gets more complex when you start doing reconciliation on matters of joint promotions by UberEats and restaurants etc,” said a restaurateur. “Fact is, that issue is not there with Indian companies,” he said.
An Uber spokesperson said the company “is compliant with the tax obligations in every country it operates in; and remains committed to providing operational efficiency to its partners and users in India.” This is Uber’s first such restructuring since 2014.
In 2014, the Reserve Bank of India had told Uber that it was violating the two-factor authentication norm for credit card payments by routing the transaction through the Netherlands. Uber then got Paytm onboard. Delays in payments have meant several corporate clients moving to other alternatives including Ola Corporate.
Earlier this month, Uber restructured and moved its entire India business – which partially operated from Netherlands under Uber BV – to the India-domiciled Uber India Systems.
“For foreign companies (like ours) to do business in India scalably, they need to localise at every level,” an Uber executive said, requesting anonymity. At least three of Uber’s corporate clients told ET that they had earlier faced issues regarding tax deductions to Uber's foreign entity, resulting in delayed payments to the ride hailing app. The old business structure had also been a roadblock in getting new large clients on board, one of the people said.
UFB is an entity that companies use to handle their employee travel needs. It forms close to 1% of Uber's revenue globally, the comapny disclosed in its IPO prospectus earlier this year. In India, however, it has been aggressively marketing the product over the last one year.
“For corporates like us, payments to a foreign entity are treated as a forex outgo for which the government demands we deduct 43% TDS on the transaction. Uber says this is inaccurate given the tax treaty between India and the Netherlands.
While this is technically fair, the fear of the liability coming back to us makes this proposition unviable,” a corporate client said.
If payments are made to a foreign entity and the tax position is unclear, Indian clients typically tend to be conservative (given the severe consequences like recovery of tax from the payer, levy of interest, initiation of penalty proceedings, disallowance of expenses, etc.), and in the absence of a certificate from the tax authorities, they may seek to deduct tax at 43%, said Pritin Kumar, corporate and international tax partner with Deloitte.
On the other hand, if the payment is to an Indian entity, the applicable tax rate ranges from 2% to 10%, depending on the exact nature of the contract, he said.
“Companies are withholding tax... as TDS is a vicarious liability and they run the risk of the expenditure itself not being allowed as a deduction,” said Hitesh Gajaria, head of Tax at KPMG India.
On the restaurant front, too, Uber had faced similar feedback from large chains where the accounting and legal processes are standardised. “It gets more complex when you start doing reconciliation on matters of joint promotions by UberEats and restaurants etc,” said a restaurateur. “Fact is, that issue is not there with Indian companies,” he said.
An Uber spokesperson said the company “is compliant with the tax obligations in every country it operates in; and remains committed to providing operational efficiency to its partners and users in India.” This is Uber’s first such restructuring since 2014.
In 2014, the Reserve Bank of India had told Uber that it was violating the two-factor authentication norm for credit card payments by routing the transaction through the Netherlands. Uber then got Paytm onboard. Delays in payments have meant several corporate clients moving to other alternatives including Ola Corporate.
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