E-commerce firms to now submit FDI compliance report to govt every year on Sept 30

Statutory auditors will compile these reports.
E-commerce firms to now submit FDI compliance report to govt every year on Sept 30
E-commerce firms to now submit FDI compliance report to govt every year on Sept 30
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E-commerce firms operating in India with foreign direct investment (FDI) will henceforth have to submit an annual compliance report on FDI norms by September 30 each year. These reports will be compiled by their statutory auditors and will be for the preceding financial year.

The procedure to submit such a compliance report already exists. The report was being submitted to the RBI, but it has been decided that the reports will be directly submitted to the government, possibly the Department for Promotion of Industry and Internal Trade (DPIIT). The earlier compliance aspect was more related to the Foreign Exchange Management Act (FEMA).

There are a few key elements the government wants to keep a close eye on as far as the e-commerce companies are concerned. Firstly, under the FDI rules, the owner of the platform where the e-commerce is permitted cannot become a seller. The foreign investor’s role will be limited only to that of a technology provider for the platform to function and allow sellers and buyers to meet and transact business. This also means a company like Amazon or Flipkart, now owned by Walmart, cannot hold any inventory or deal directly.

In addition, these entities are also running their wholesale businesses where they are allowed to sell directly. But the FDI norms stipulate that any seller who purchases more than 25% of the value of goods being sold on the e-commerce platform from the wholesale platform of the same marketplace. To illustrate this, if a vendor A on Amazon sells Rs 100 crore worth goods on the Amazon retail website and more that Rs 25 crore of these goods have been purchased from Amazon, through its wholesale site or otherwise then the goods will be deemed to be owned by Amazon.

The second most important aspect is that the ecommerce marketplace, or the foreign direct investor cannot be holding any equity in any of the sellers on its platform or offer any special privileges to select sellers. The compliance report to be submitted by the statutory auditors will have to certify that these FDI norms are being complied with, by the firms.

Interestingly, both Amazon and Flipkart have put out statements on this saying that they are fully in compliance with the FDI norms and they will have no difficulty in submitting these reports.   

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