The latest impost was introduced in the Finance Act 2020 by widening the scope of the equalisation levy to include e-commerce players and intermediaries.
INDIA HAS OPPOSED a US probe into its digital services tax, firmly asserting that its equalisation levy, or the so called‘ Google tax’, is“non-discriminatory”, has only prospective application and doesn’t specifically target American companies. New Delhi’s staunch defence of the levy suggests it’s unlikely to roll it back anytime soon.
In its reply to the the office of the US Trade Representative (USTR), which has launched the investigation into the digital services tax of India and nine others, including the EU and the UK, New Delhi says: “Far from targeting any US company or companies, the purpose of the equalisation levy is to ensure greater competitiveness, fairness, reasonableness and exercise the ability of governments to tax businesses that have a close nexus with the Indian market through their digital operations.” The levy can’t be said to have “extra-territorial” application, it says.
As reported by FE on June 3 on India’s likely reply, New Delhi has also highlighted that the levy is well within its“commitments under the WTO and international taxation agreements”. However, NewDelhi“is willing to engage in further discussions to clarify any questions or concerns that the government of the US may have”,it says.
Announcing its decision to launch the investigation in June, the office of the USTR had said New Delhi slapped a 2% DST (digital services tax) from April1.“The tax applies only to non-resident companies, and covers online sales of goods and services, or aimed at, persons in India. The tax applies only to companies with annual revenues in excess of approximately Rs 20 million (approximately $ 2,67,000),” it said.
Stressing that the levy does not discriminate against non resident e-commerce operators, India says: “The underlying policy objective and application of India’s equalisation levy, is to ensure that neutral and equitable taxation is applicable to e-commerce operators that are resident in India or have a physical presence in India and those that are not resident in India.” “The purpose is to ensure a level playing field with regard to ecommerce activities undertaken in India.
This, in fact, is the very antithesis of the underlying apprehensions listed out in the USTR’s S.301 DST Initiation.” New Delhi says it “notes with regret” the initiation of the probe, launched under the Section 301 of the Trade act of 1974. This law authorises authorities to initiate action, including punitive tariffs, in response to a foreign country’s action that is deemed unfair or discriminatory and curbs American trade.
The latest impost was introduced in the Finance Act 2020 by widening the scope of the equalisation levy to include e-commerce players and intermediaries. It’s a sort of digital tax on non-resident e-commerce operators at 2% on the revenue they generate in India from e-commerce supply or services. This levy has to be deposited by the e-commerce operator and not by the buyer of the goods or service.
Earlier, the equalisation levy (at 6%)was introduced in 2016 and slapped on the revenues generated on business-to-business digital advertisements and allied services of the resident service provider. The levy is designed to nullify the advantage of foreign e-commerce firms sans a physical presence in India overlocal competitors.
The 2016 levy had impacted companies like Google and Facebook, among others. While the precise scope of the 2% levy is still being debated, some analysts have said an Indian resident purchasing goods from the Amazon ( US) or Alibaba or even a transaction between the Amazon US and AmazonIndia, too, could trigger this levy, as the latter would be treated as resident.
New Delhi says the concept of the equalisation levy in India emerged as a result of the deliberations of the OECD Base Erosion & Profit Shifting (BEPS) Project, which crystallized in the Report on Action 1 of BEPS Project.
This report was accepted by India and other members of the OECD, thereby representing a broad consensus view on the issues discussed in the report.It formed the basis of the detailed consultations by a Committee on Taxation of E-Commerce constituted by the Indian government, which had submitted its report in February 2016. This committee analysed in detail the BEPS report on Action 1, which had highlighted the need for modifying existing international taxation rules, and laid out three options for the consideration of countries, that is, (a) a new nexus based on significant economic presence,(b) a withholding tax on digital transactions, and (c) equalisation levy.
However, the BEPS report did not recommend any specific option, recognizing that more work may be required in the area of attribution of profits. Nevertheless, it noted that: “Countries could, however, introduce any of these three options in their domestic laws as additional safeguards against BEPS, provided they respect existing treaty obligations, or in their bilateral tax treaties.”
The Indian government panel accordingly analysed each of the three options presented by the BEPS Report and recommended the application of the equalisation levy on specified digital services. In a statement in June, USTR Robert Lighthizer had said: “President (Donald) Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies.”
Apart from India, the others that are being investigated are the EU, the UK,Austria, Brazil, the Czech Republic, Indonesia, Italy, Spain and Turkey.