The government has expanded the scope of equalization levy to all overseas e-commerce transactions originating from India in amended Finance Bill 2020
More about news
·
India will levy an equalisation levy of 2% on sales made
by foreign e-commerce companies in the country. This will impact
those companies that don’t have a
base in India, but sell their
goods here.
o Equalisation Levy is a direct tax
·
The levy would be imposed on those companies that have a turnover or sales of over Rs 2 crore in the previous
year
o
Also, the compliance of the levy has been shifted to
the non-resident service
provider.
· Now, expanded scope stretches beyond goods and services supplied to Indian residents and includes supplies to any person using an Indian Internet Protocol (IP) address.For example, a foreign citizen availing services, whilst visiting India and using the Indian IP address is also covered.
Global Scenario
·
Australia—Turnover tax called digital services tax is proposed to be introduced which may be levied on income of large multinationals providing advertising space, trading platforms, and the transmission of data collected about users.
· New Zealand—Amazon tax is proposed to tax books and goods bought online.
· Uganda—Tax on social media wherein users of WhatsApp, Twitter, Facebook will pay a fee.
· OECD has considered the Action Plan 1 called “Addressing the tax challenges of the Digital Economy" as part of its Base Erosion and Profit Shifting Project (BEPS).
· France has implemented tax on large technology companies with large annual global revenue called GAFA (Google Apple Facebook Amazon) Tax.
Need for such rules
·
Uniqueness of digital e-commerce model
o
Under
the traditional model, an MNC is liable to pay tax in the jurisdiction of
its’ Permanent Establishment or the jurisdiction where the source of income
exists.
o However,
digital service sectors derive the income from users located
in different jurisdictions, and in most cases, these
lack a physical presence in countries where customers are located.
·
Large
User Base: Foreign tech companies have
a large number of users,
and so a significant
economic presence (SEP) in India. This in turn leads to revenue generation through data but these companies
don’t pay appropriate taxes on this revenue.
·
Revenue
generation: It is being hoped that this equalization levy will generate almost $ 100 billion worth of global taxes.
Challenges in implementation
·
Nexus: Prevalence of nexus between
the global tech giants and the
lower tax jurisdictions.
·
Data: The challenge is how to estimate
the value created
from the generation of data through
digital products and services.
o There seems to be no
global consensus on how
the global technology firms should be taxed.
·
Characterisation of profits: As to how to determine and attribute
profit to India operations of these technology firms,
i.e. the profit that is earned from activities in India.
·
Compliances:
Unlike the earlier levy (on advertising), now the foreign e-commerce
operator will be required to make compliances in India which could
also raise potential challenges.
·
Possible
legal challenges: There are chances of legal challenges on
extra-territoriality as the provisions seeks
to cover non-resident to non-resident transactions which use India data.
Also, the regulation may come in conflict with some bilateral and multilateral treaties.
o
The current Double tax avoidance
treaties (DTAAs) override
the amended definition of Business Connection that includes the concept
of Significant Economic Presence
(SEP).
Way forward
Experts tracking the digital ecosystem have agreed that a comprehensive digital tax code which is consistent internationally has to be the solution in the long-term. Till such an ecosystem takes shape, continuous multi- stakeholder engagement encompassing governments as well as companies could be adopted.
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