Picture this. Your alarm clock rings at 5.15 in the morning, communicates with your home’s lighting system and makes the room light ambient for your still sleepy eyes. Alongside it has communicated with your bathroom water heater to set the right temperature and has intimated the juicer to start blending your favorite morning blend and the toaster to get the toasts ready. Your car gets the timer message to make the cabin temperature comfortable and sets the GPS course based on your online calendar. Life is simple, you just have to program it all once and machines communicate with each other.In early 90s the scene would fit a sci-fi movie but in today’s world, this has become a reality. Our age has seen Internet overtaking all possible formats of business. We have seen innovations and technological advances with Internet at its core especially in the fields of communications, data collection and transfer. Thus came the newer terms like Internet of Things (IOT), Machine-to-Machine communication (M2M) etc. IOT is internetworking of devices in which everyday objects have network connectivity, allowing them to send and receive data. The example above just scratches the surface for use of the technology. The technology is being used successfully in manufacturing, medical and healthcare systems, energy management, transportation, shipping and logistics, home solutions, smart cities and many more. Our homes, offices, devices we use are getting smart and capable of generating useful data.
Given the complexities, these new age techs need to be developed and worked within the ambit of legal and tax laws of a country. However considering that the technology is not geographically bound, several complexities may arise from legal and tax standpoint and hence needs a careful consideration before any ech or model is formally launched.
The foremost concern around this concept of machines talking to each other without any human intervention is around privacy and data protection. In India this is covered under the Information Technology Act, 2000 (ITA). However even the Act does not deal with the personal information being exchanged in all situations by the devices. Apart from the privacy issues, other legal and tax issues, which may come up and need to be addressed, are:
a. Ownership of data being transmitted: Will the Company owning the device or the software Company collecting the date from device or the Company/person whose data is being collected own it? The contracts need to be clear as to the ownership of data being transmitted. There is no settled position in Indian Laws currently.
b. Security: Depending on the usage and dependency on the technology, IOT may pose a serious security threat to a person or an organization by revealing data to unwanted elements. This has brought about a huge change by including cyber security to the list of must haves for the organizations.
c. Jurisdiction: The devices communicating may be geographically disassociated but may fall under the same legal jurisdiction. Local laws will need to be taken into account into the contracts and business model. For international jurisdiction definition, the ITA accounts for application beyond India however only in case some damage or harm has been caused on account of offence or contravention committed outside India
d. Direct Taxation: Keeping in view the ever-evolving international tax scenario, multidimensional planning is required. Questions around classification of income, Permanent Establishment exposure needs to be carefully addressed.
e. Indirect Taxation: Whether the device and services need to be taxed together or separately and how would the services being rendered valued. The issue regarding software being treated as a service or goods is yet to be settled and more often than not, one finds both the authorities claiming a pie of transaction.
There are other matters like patent registration, usage rights, insurance coverage, consumer disputes and liability planning etc. which need to be looked at closely and built into the model and will vary from case to case.
IOT tech proliferation in India being at a very nascent stage, there is little or no certainty in the Indian tax and other laws. However considering that many companies are entering this space and issues are bound to arise, it will be interesting to see how the legislations make way for tech growth and address the issues.
IBA has created a New-Tech support wing aimed at addressing the tax, legal and regulatory issues of such new age enterprises. The team works in understanding and guiding the enterprises on such matters at all stages.