By Shefali Goradia and Pooja Dhokad
The rapid growth of the digital economy has increased the need to devise globally accepted consensus-based mechanisms to effectively tax the digital economy. While the OECD is working towards a global agreement, many countries such as France, Turkey, Italy, Austria and the United Kingdom have proposed, announced or implemented Digital Service Taxes (DST) as interim measures. doing. Tax digital companies.
Inspired by G20/OECD BEPS Action 1, India introduced equalization Levy (EL 1.0) in 2016 to non-resident companies engaged in online advertising and related activities at a 6% rate. The Government of India has further expanded the scope of EL under the Financial Law of 2020 and will be subject to a tax of 2% from April 1, 2020, based on consideration received by e-commerce operators from e-commerce supplies or services. Included (EL 2.0).
The first installment of EL 2.0 was scheduled for July 7, 2020. Stakeholders hoped that the government would consider the COVID-19 crisis, postpone the collection and issue a clarification on the scope of the collection. Meanwhile, the US Trade Representative has also launched a renowned investigation into Section 301 investigations against hosts in India, the European Union and other countries on unilateral digital taxation. However, the Government of India appeared steadily in its commitment to taxable digital transactions and simply modified Charan (ITNS 285) for EL 2.0 payments on July 3, 2020.
What’s the fuss? So if many countries are introducing unilateral digital taxes, why are you concerned about EL in India? With the introduction of EL 2.0, many questions arose. Direct tax or indirect tax, or outside the area considering that foreign companies need to pay, not Indian customers. The range of taxation is also very wide. Some important expressions such as selling goods online, offering services online, digital or electronic equipment or platforms are not defined. In contrast, in most European countries, DST applies only to online marketplaces, social media platforms, or search engines. In addition, regulated financial services activities and intra-group transactions are excluded in some countries, such as France and Italy. On the other hand, in India’s EL 2.0, there is no such exclusion.
It would have been helpful if a clarification was made regarding the applicability of EL in-kind trading, software sales, etc. Furthermore, there is no income tax exemption for the years 2020-21. This can lead to double taxation, which is subject to withholding tax under both Income Tax Law and EL. This seems contrary to the government’s intent, given the legal exemption granted between 2021 and 2022.
Since EL is not part of the Income Tax Law, whether e-commerce operators are eligible to apply for EL credits or deductions in their own countries is also a key concern.
These interpretation issues are compounded by the lack of explanatory notes to the 2020 fiscal bill. Therefore, it is essential for the government to articulate these nuances so that companies do not have any ambiguity about the applicability of the EL provisions.
Administrative Concerns Charan was amended by the Government just three days before the first payment due date for the July 7, 2020 installment. Therefore, entering the permanent account number (PAN) is a required field. Since many non-resident companies do not have PAN, it is virtually impossible to get PAN within 3 business days, causing an unintentional delay in taxable deposits, which raises interest rates. Overall, it is understandable that India imposes equalization taxation, but the government has released the guidance necessary to clarify and narrow down the scope of taxation, taking into account the practical and administrative challenges faced by the first By companies that need to waive the installmental interest tax. And like in other countries, the Indian government needs to reaffirm its commitment to withdraw the leveling tax once the global consensus-based solution is finalized by the OECD.
(Shefali Goradia is a partner of Deloitte India, Pooja Dhokad is the manager of Deloitte Touche Tohmatsu India LLP)
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