Equalisation levy of 2% on e-comm firms non-discriminatory: India tells US

The concept of equalisation levy in India emerged as a result of the deliberations of the OECD Base Erosion and Profit Shifting Project, which crystallised in the BEPS Project report.
India has defended the 2 per cent equalisation levy on non-resident e-commerce companies, saying it is non-discriminatory in nature and its purpose is to tax businesses that have a close nexus with the country's market through their digital operations.

In a six-page written submission to the United States Trade Representative (USTR), India said the levy is applicable only for companies with annual revenues in excess of Rs 20 million (about $ 267,000), which is a low threshold aimed at exempting very small e-commerce operators globally.

"It does not discriminate against companies based in the United States as it applies equally to all non-resident e-commerce operators not having permanent establishment in India, irrespective of the origin of such companies," India said.

The US had last month decided to start an investigation under Section 301 of the Trade Act, 1974, into the digital services taxes that have been adopted or are being considered by a number of countries, including India, to "unfairly" target American tech companies. It had then invited public comments on the said investigation.

"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," India said in its comments.

India is ready to engage in bilateral discussions with the US on the matter, it said.

The objective of the levy is to provide greater clarity, certainty and predictability in respect of characterisation of payments for digital services and consequent tax liabilities to all stakeholders, so as to minimise costs of compliance and administration as also tax disputes in these matters, it added.

Assuring the US that the equalisation levy is entirely consistent with India's commitments under the WTO and international taxation agreements, it said if the US has any specific concerns or clarifications, it can raise these issues at the appropriate forum, in accordance with the provisions for dispute settlement as agreed under the specific international agreements.

India said the ongoing multilateral consultations under the aegis of the G-20-OECD due in this regard have not arrived at any consensus even after many years of discussions.

The equalisation levy is seen as an additional safeguard against BEPS (Base Erosion and Profit Shifting) and loss of revenue in India due to activities of the e-commerce operators operating in the country.

"This has necessitated introduction of 2 per cent Equalisation Levy on e-commerce supply or services. This levy is non-discriminatory as it has uniform applicability," India has said.

The concept of equalisation levy in India emerged as a result of the deliberations of the OECD Base Erosion and Profit Shifting Project, which crystallised in the BEPS Project report.

Stating that the levy does not discriminate against non-resident e-commerce operators, it said the underlying policy objective is to ensure that neutral and equitable taxation is applicable to e-commerce operators that are resident or have a physical presence in India and those that are not resident in the country.

"The purpose is to ensure a level-playing field with regard to e-commerce activities undertaken in India. This, in fact, is the very antithesis of the underlying apprehensions listed out in the USTR's S.301 DST (Digital Service Tax) Initiation," India said.

Over two dozen non-resident tech companies would come under the purview of the equalisation levy as introduced in Budget 2020-21. It has come into effect from April 1, 2020.

The 2 per cent tax would be levied on consideration received by e-commerce operators from e-commerce supply or services.

Meanwhile, Nangia Andersen LLP PartnerSandeep Jhunjhunwala said, "The response filed by the Government of India addressing all aspects of investigation makes it evident that there is no intention to defer or rescind the provisions governing this levy. However, the authorities may provide necessary clarifications and resolve persisting ambiguities.

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