Introduction

We are pleased to present the latest edition of Tax Street – our newsletter that covers all the key developments and updates in the realm of taxation in India and across the globe for the month of April 2020.

  • The 'Focus Point' covers the recent amendment to the Finance Act, 2020 that expands the scope of Equalization levy and the aspects of its practical application.
  • Under the 'From the Judiciary' section, we provide in brief, the key rulings on important cases, and our take on the same.
  • Our 'Tax Talk' provides key updates on the important tax-related news from India and across the globe.
  • Under 'Compliance Calendar', we list down the important due dates with regard to direct tax, transfer pricing and indirect tax in the month.

Focus Point

Equalization levy — a fair regime of taxation!

The digital transformation in the economy has opened gates for various tax challenges in terms of nexus, characterization, and valuation of data and user contribution. Even though the companies manage to generate huge revenue from a country, they pay none or negligible taxes in the country. The OECD, in its action plan, has tried to provide ways to circumvent these challenges. One of the recommendations given in Action Plan 1, was to levy 'Equalization Levy' on e-commerce transactions. India was one of the front liners to implement this suggestion and levy such charge on specified transactions vide Finance Act 2016.

As per the provisions introduced in Finance Act 2016, the resident payer is liable to withhold 6% equalization levy on the consideration payable to the non-resident for specified payments (mainly online advertisement). It would be important to note that 'equalization levy' was charged as a separate levy and was not a part of Income Tax law. Accordingly, in order to avoid double taxation, the Indian Government has exempted such income from payment Income Tax, through specific exemption.

Amendment vide Finance Act, 2020

However, with effect from 1 April 2020, 2% equalization levy shall be paid by the e-commerce operator on considerations received or receivable by an e-commerce operator from e-commerce supply or services made, provided, or facilitated by it to:

  • An Indian resident
  • A non-resident in 'specified circumstances,' namely:
    • Sale of advertising that targets Indian customers. The 'Indian Customer' is a person who is resident in India, or access the advertisement through an IP address located in India; and
    • Sale of data collected from Indian customers; or
  • A person who buys such goods, services, or both via an IP address located in India.

'E-commerce operator' in this case is defined as a nonresident who owns, operates, or manages a digital or electronic facility or platform for online sales of goods, online provision of services, or both.

Further, it has been clarified that 'E-commerce supply or service' shall cover –

  • Online Sale of goods owned by the e-commerce operator;
  • Online provision of services by the e-commerce operator;
  • Sales of good, provisions of services, or both, facilitated by the e-commerce operator; or
  • Any combination of the above.

To view the full article, please click here.

Originally Published April 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.