SYNOPSIS – INDIA’S EQUALISATION LEVY 2020 : ISSUES, PERSPECTIVES

AND TAX POSITIONS

INTRODUCTION

India recently passed its Finance Act 2020 to expand the scope of equalisation levy, a type
of digital service tax, charged to non-residential e-commerce businesses. However, the Act )
has extra-territorial application, since it attempts to tax the income earned from
advertisements aimed at Indian customers, or accessed through Indian IP addresses, and
income earned from the sale of data, goods and services to anyone using an Indian IP address.
At a simplistic level, this Levy is introduced to capture into the tax net transactions that
escaped Indian tax for either not crossing the permanent establishment (“PE”) threshold
(“insufficient nexus”) or for non-fulfillment of withholding clauses (“characterization
issues”) of a treaty. Multilateral trade relations have suffered numerous blows from
proponents of unilateral protectionism in the form of trade wars and economic warfare. The
issue of digital taxation has the potential of becoming an additional blow.

SCOPE OF RESEARCH

This post engages with the extra-territorial aspects of the equalisation levy, and aims to
highlight the technical and practical difficulties that arise with the imposition of equalisation
levy in its current state in India. The objective of this resarch is to cover e-commerce taxation
and india. It could be insightful to refer to the observations and conclusions of a
similar investigation completed against French DSTs and lastly we will analyse Concerns and
challenges with respect to enforcement of EL.

STATEMENT OF PROBLEM

An expanded version of equalization levy (EL) has come into force in India from 1 April
2020.Since government of india has not issued supplementary rules to erase the ambiguity
surrounding the implementation of the equalization levy Further, the Government did not
talk about harmonizing the equalization levy with its bilateral and multilateral tax
agreements, such as the DTAAs. France’s attempt to tax caused political tensions between
the US and France with threats of tariffs from both sides. USA could challenge the
equalisation levy and similar digital services taxes for violation of the most favoured nation
[MFN] treatment under article I of the General Agreement on Trade in Services [GATS].
There has been lack of clarity in provisions of the act and issues in its implementation. This
research is to find out the possible outcomes and necessary measures to be taken. Also should
the government implement this on temporary basis?

RESEARCH QUESTIONS

1. What is the nature of transactions covered under the scope of the levy?
2. What are the technical and practical difficulties that arise with the imposition of
equalisation levy in its current state in India?
3. Whether the Levy is on the gross amount received by the operator or is it leviable only
on the portion of the amount that is due and legally vests with the operator?
4. Whether the amount paid under the Levy is creditable in the residence country?
(Assuming US as resident country)
5. What are academic ambiguities regarding the digital service tax globally?
( Impediments of extra territoriality)
6. What is the General Agreement on Trade in Services(GATS) framework and Most
Favored Nation (MFN) regarding digital services trade taxes and their violation?

CHAPTERISATION SUMMARY

Firstly, the introduction to the topic will be given where the ecommerce and the taxation in
india will be discussed and intention behind the levy will be discussed with a brief distinction
between 2016 and 2020 levy.
Secondly, the basic technical and practical issues will be discussed with some specific
questions regarding functioning of the levy.
Thirdly, the academic deliberations for digital services trade and GATS framework will be
looked upon.
Fourthly, concerns, conclusion and suggestions will be mentioned.