Introduction
Over the last decade, the rapid growth of internet and information technology has led to the rise of a new kind of service – online information and database access or retrieval services (OIDAR). In India, OIDAR services provided by non-resident foreign suppliers have long been subject to GST regulations. However, significant amendments in the regulations, effective from October 1, 2023, have expanded the scope of what qualifies as OIDAR services, making it crucial for foreign service providers to understand these changes.
Evolution of OIDAR Service Definition
Before October 1, 2023, OIDAR services were defined as services delivered over the internet that were “essentially automated and involved minimum human intervention.” Importantly, if the recipient used these services for commercial or professional purposes, the GST levy was not applicable. However, recent amendments have redefined OIDAR services, removing the “minimum human intervention” condition and extending the definition to cover any services that cannot be delivered without the use of information technology.
Recent Enforcement Actions
In response to these changes, the GST department has started proceedings against foreign service providers that may have avoided compliance since 2017. These include companies offering movie or music subscriptions, online advertising, cloud services, e-books, gaming platforms, and cryptocurrency trading services. The government’s aim is to bring all such internet-based services within the GST framework, asserting that the services are automated with minimal human involvement.
Potential Defenses for Taxpayers
While foreign service providers are under increased scrutiny, there are possible legal defenses, particularly for pre-October 2023 transactions. One defense could be demonstrating that substantial human intervention was required in providing these services. The definition of “automated” and “minimal human intervention” remains vague, and careful documentation that demonstrates human involvement may serve as a viable argument.
Global Perspectives on Human Intervention
The European VAT Committee provides some useful insights into what constitutes “minimal human intervention.” According to the Committee, if human involvement is only for secondary activities or if there is no customization for individual customers, it would be considered minimal intervention. For instance, while help desk support may be considered minimal, customizing services for individual users would not, and therefore such services could be exempt from OIDAR classification.
Impact of Recent Amendments
The amendments effective from October 2023 have removed previous exemptions like “substantial human intervention” and the “personal consumption” exclusion. This means that almost all internet-based services could now qualify under OIDAR, irrespective of whether the recipient is using the service for personal or professional purposes.
Unanswered Questions
These recent changes, intended to eliminate ambiguities, have raised several new questions. For instance, would live streaming events that involve substantial human activity still fall outside the scope of OIDAR services? If an online training course includes tutor support and feedback, does it qualify as OIDAR? Should a foreign entity providing just a paywall service to individuals in India be subject to GST?
The Path Forward
Given the growing scrutiny from the GST department, foreign companies operating online services accessible in India should reassess their service offerings from an OIDAR perspective. They should take appropriate measures to comply, such as registering under GST, appointing representatives, and filing timely returns. Failing to do so may lead to significant liabilities and penalties.
Conclusion
As GST enforcement ramps up on foreign service providers, understanding the new regulations is crucial. Companies must either comply with the expanded definition of OIDAR services or prepare for litigation to challenge demands. Being proactive in evaluating their obligations will help avoid costly disputes and ensure smooth operations in India.