The concept of Equalisation Levy was coined in the BEPS Action plan 1, suggested by the OECD, which gained immediate popularity amidst the global powers, who were looking for an answer for a long time for the taxation on the income earned by the companies using the digital platforms. As per the Action plan 1, “A non-resident having Significant Economic Presence (SEP) in a country could be taxed through equalisation levy”, is the principle that was laid down before applying the levy. Hence, a SEP plays a very crucial role in implementation of such a levy.
India has been one of the fore-runners in adopting many BEPS action plans and the digital taxation was no exception. In the year 2016, India introduced 6% equalisation levy ( let us consider this as version 1.0) on digital specified services received by a non-resident not having a Permanent Establishment (PE) in India.
In year 2020, India has introduced a version 2.0 of the equalisation levy, which extends the scope of such levy to non-resident e-commerce operators providing an e-commerce supply or a service [companies that are not covered by the Equalisation levy 1.0 and whose turnover is more than INR 20 million (USD 260,000)].
The features of such an Equalisation levy 2.0 or digital taxation are as follows:
•To be charged at 2% w.e.f 1 April 2020;
•On consideration received/ receivable by a non-resident e-commerce operator;
•Where e-commerce Supply is provided to (a) person resident in India (b) a non-resident that undertakes transaction that are specified ( i.e. sale of advertisement targeting an Indian customer who accesses Internet Protocol (IP) located in India ‘OR’ sale of data collected from a person who is resident in India or who is using Indian IP) (c) person who buys goods and services using Indian IP.
e-commerce operator –
means a non-resident who owns, operates or manages digital or electronic facility or platform for online sale of goods or online provision of service or both;
e-commerce supply or service –
online sale of goods, online provision of services provided, online sale of goods or service facilitated by e- commerce operator.
The applicability of levy is to B2B transactions as well as B2C transaction. There is no specific carve out. One of the possible carve out could be software companies which are distributing software in India and paying a Royalty on the same, however the same needs to be examined by the Tax Authorities and added to the exceptions, which currently is not in place.
Another possible addition could be a foreign payment gateways that facilitate the transactions in India. As the levy covers the term facilitation, the payment gateways could be considered to be under the net of equalisation levy.
Further, by a plain reading of the definition even the inter corporate services including the management service or the business support services provided offshore could be brought under the net of equalisation levy. Clarification is required for an exclusion of such inter-corporate and other B2B services.
It is important to note that such a levy is a unilateral measure and may not be included or envisaged in the tax treaties with India, thereby not being eligible for a Foreign Tax Credit (FTC) in the country of residence. While the Equalisation Levy have been a wild card entry in the Finance Act, 2020, which was not imagined by many, with the definition of SEP yet under discussion and finalisation, it looks like a bold step by India to give out a clear message to the world that the e-commerce customers do carry significant value and the business of such e-commerce operators should be brought under tax bracket of the source country.
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