and Flipkart, whose headquarters are not in India, potentially have to pay the additional levy of 2 per cent from April 1.
Taking a cue from international forums such as the G20, the Organisation for Economic Cooperation and Development (OECD) and the Base Erosion and Profit Shifting (BEPS), India introduced an equalisation levy in 2016 at the rate of 6 per cent. This is for non-resident companies involved in online advertisement and related activities.
The Budget 2020 had further widened the scope and added an additional levy on the consideration received or receivable by an ‘e-commerce operator’ from ‘e-commerce supply or services’, and is effective from April 1.
are of the view that, at such times, the new levy will only make matters worse. This is because it will require businesses to make complicated changes to their internal systems, accounting and billing mechanisms, in such a short notice.
The impact on multinationals are wider as the definition of the term e-commerce operator and e-commerce supply is different in different nations.
Under the new levy, a taxpayer needs to find out whether the IT services provided by a non-resident (parent firm) to an Indian subsidiary could attract the levy.
Prima-facie, it appears that, in addition to normal e-commerce operators, it may also impact other non-resident service providers/ tech companies selling software/ technological solutions or services online through a digital platform owed/ operated/ managed by them to any customer in India.
Thus, it may bring within its ambit all kinds of online software sale transactions made by a non-resident seller.
They are online trainings and other services provided by non-resident service provider or even facilitated by a non-resident service provider through a digital/ online platform owned, operated or managed by it, according to a report by Nangia Andersen LLP, a tax consulting firm.
Tax experts believes there are certain issues with the new levy which require clarity and that is why it is difficult for companies to comply. For instance, it is not clear what kind of business model of a non-resident will qualify as an e-commerce operator. Also, whether the tax treaty has any applicability in case of new levy as well as how to claim exemption and where a transaction is subject to income tax. And, is there any mechanism in case a tax dispute arises over difference of opinion on applicability of new levy between non-resident and Indian tax authorities.
The government’s collection on previous equalisation levy has gone up to Rs 1,000 crore since its first began in 2016. This has prompted the government to widen jurisdiction of the tax to other areas of the digital sector. The government wanted to ensure that multinationals conducting significant business in places where they do not have a physical presence be taxed in such jurisdictions. However, taxing these global giants has been going on at the 36-member OECD
forum that will affect India’s right to tax these companies.