It emphasised that the levy was applicable prospectively, and could not be said to have ‘extra-territorial’ application.
“The equalisation levy
does not discriminate against non-resident e-commerce operators. The underlying policy objective and application of India’s equalisation levy
is to ensure a neutral and equitable taxation is applicable to e-commerce operators that are resident in India, or have physical presence in India, and those not resident in India,” New Delhi said in its public comment.
Further, it said that far from targeting any US entity, the purpose was to ensure fairness, healthy competition, and to exercise the ability of governments to tax businesses having a nexus with the Indian market through digital operations.
“It does not discriminate against firms based in the US, as it applies equally to all non-resident e-commerce operators not having a permanent establishment in India, irrespective of the origin,” it added.
New Delhi highlighted that the threshold application for the levy — which is annual revenues in excess of Rs 20 million (which the USTR has noted to be approximately $267,000) — is low, aimed at exempting very small e-commerce operators globally.
The deadline for filing the equalisation levy, for the first quarter, was July 7.
India highlighted the lack of consensus in the multilateral consultations under the aegis of the G20-OECD framework. The Google Tax
is seen as an additional safeguard against ‘base erosion and profit shifting’ (BEPS) and loss of revenue due to activity of such e-commerce firms
operating in India.
BEPS refers to the exploitation of gaps and mismatches in tax rules by MNCs to shift their profits to low-tax regimes. Internet firms operate in low-tax jurisdictions but do business in other countries without physical presence, to avoid taxes.
Maintaining that the measure is WTO-compliant, it has urged Washington DC to raise the issue at the WTO rather than opting for a unilateral approach, inconsistent with multilateral trade rules.
“The GOI understands that should the US have specific concerns or clarifications, it may raise these issues at the appropriate forum, in accordance with provisions for dispute settlement as agreed under specific international agreements,” it added.
It added: “The Government of India would be happy to provide clarifications as may be required by the USTR in these proceedings, or in bilateral discussions under Section 303(a) of the United States Trade Act, 1974.”
It noted that the US Supreme Court had, in a recent ruling, held that physical presence was not required for the levy of sales tax by a state where online seller had no physical presence but made online sales.
“The principle under the US’ legal framework is on the same lines as that of India, which is that in a digitalised world a seller may engage in transactions without physical presence,” it said.