Help break U.S. tax barrier, PM urged

By Sandeep Dikshit

NEW DELHI, AUG 29. The information technology industry is hoping that the Indian delegation to the U.S. led by the Prime Minister, Mr. Atal Bihari Vajpayee, will be able to broach the subject of ``double taxation'' on software companies doing business in the United States.

The industry had hoped that the issue would be aired during the U.S. President, Mr. Bill Clinton's visit to the subcontinent early this year. Despite much hype, signing of a ``Totalisation Agreement'' with the U.S. never even came up for discussion. The pact provides that an individual is covered under the social security system of only one country, usually the expatriate employee's home country.

This time around the Indian IT companies, most of whom temporarily depute employees to the U.S., want the Government to take urgent steps to ensure that a Totalisation Agreement is signed at an early date. The industry can then avoid paying over one-fifth of each U.S.-based employee's gross wages as social security taxes in the U.S.

Led by the Infosys chief, Mr. N. R. Narayana Murthy, the industry contends that this ``non-tariff'' barrier yields no return to employer as well as employees. Most European companies do not pay social taxes on behalf of their employees for doing business in the U.S. This is because employees are covered under Totalisation Agreements signed with the U.S. There is no reason why India cannot sign a similar agreement because U.S.-based employees of Indian software companies are covered in India under various social security schemes like the Employees Provident Fund Act, Employees State Insurance Scheme etc., contends the software industry.

Indian companies contend that the services rendered by their employees in the U.S. are sporadic and temporary in nature. Therefore they are not covered by the term `employment' for the purposes of U.S. social security taxes such as the Federal Insurance Contribution Act and the Federal Unemployment Tax Act.

Elaborating its stand, the industry points out that a minimum period of 10 years is provided for making contribution under the U.S. social security laws before the employee can get future benefits. The employees of Indian companies work in the U.S. only temporarily and they will never be able to claim or get any benefits under the social security laws. The system therefore causes enormous foreign exchange outflow with no return to either to the employer or the employees, they contend.

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