India

RSM India Research Report - India Introduces 2% Equalisation Levy on E-commerce Operators

Section:- GST

Caption :-  The Digital economy and e-commerce businesses are growing exponentially and impact all of us. The digital economy would cover within its ambit, various things such as online subscription-based services, online sale of goods/ services/ software, online gaming, hotel/ flight booking etc. Taxation of cross border e-commerce transactions has been a challenge for the entire world, including India, as there are several issues with taxing such transactions due to location of the supplier being outside taxable jurisdiction, absence of physical presence, characterizing the nature of transaction (goods or service), administrative challenges in tracking and collecting taxes and various others. In order to bring such cross-border e-commerce transactions into the tax net, India has recently vastly expanded the coverage of “Equalisation Levy” with effect from 1 April 2020. The Finance Act, 2020 which received assent from the President of India on 27 March 2020 has amended the provisions of Equalisation Levy and widened its scope to introduce levy on e-commerce supply or services @ 2% facilitated by a non-resident e-commerce operator.

Scope of Research Report

India has introduced a 2% “equalisation levy” on e-commerce operators with effect from 1 April 2020. This levy is applicable to those e-commerce operators who do not have any entity or office or permanent establishment in India.

In this Research Report, we have endeavoured to cover the following:

  •  Legal provisions relating to Equalization Levy – Persons covered, taxable event, rate, payment timelines, compliances, and related aspects
  • The legal validity of the levy due to extra-territorial applicability, the OECD guidelines, and the GATT
  • Whether Equalization Levy is in the nature of income-tax or direct tax? If so, whether the levy is subject to the terms of the Double Tax Avoidance Agreements and Multi-Lateral Instruments with various countries? Whether credit for Equalization Levy can be claimed by the E-commerce operator against his corporate or direct tax liability?
  • Whether Equalization Levy is in the nature of GST or indirect tax? Whether credit for Equalization Levy can be claimed by the recipient of goods or services against his GST liability?

It must be pointed out that the analysis in this report contains our view of the subject matter and needs to be revalidated by the users based on their facts and country of operation. The equalisation levy is a newly introduced global tax with limited guidance from judicial and administrative authorities and diverse views and litigation are possible.

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