10th March 2022 (6 Topics)

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Equalisation levy a sovereign right, FM

Context

Finance Minister Nirmala Sitharaman recently justified India's 2% equalization levy (EL) on multinational corporations' delivery of services, claiming that it is a sovereign prerogative to tax profits gained from activities in the country.

About

What is the Equalisation Levy (EL)?

The Equalization Levy (EL) is a tax levied on the compensation received by a nonresident for specific services.
The term "Specified Service" refers to online advertising, the supply of digital space for online advertising, or any other service used for online advertising purposes.

The Equalization Levy is levied by the Finance Act 2016, not the Indian Income Tax Act of 1961.
The Equalization Levy was implemented by the government as part of the Finance Bill in 2016, with the goal of taxing digital transactions.
According to Section 165 of the Finance Act 2016, a person resident in India or a non-resident with a permanent establishment in India must deduct EL at 6% on the consideration given to a non-resident for specific services.

Applicability of Equalisation Levy:

The Equalisation Levy is a direct tax that the service receiver withholds at the moment of payment.
To be liable for the equalization levy, two requirements must be met:
Payment should be made to a non-resident service provider./span>
One service provider receives more than 1,00,000 in yearly payments in a single fiscal year.

About EL (Equalization Levy) 2.0:

The Finance Act of 2020 broadened the scope of the EL to encompass all non-resident e-commerce businesses offering 'e-commerce supplies or services'.
According to the enlarged requirements, beginning April 1, 2020, a non-resident e-commerce operator is required to pay an Equalization Levy of 2% on the consideration received/receivable from e-commerce supply or services.
Salient features of (Equalization Levy) EL 2.0:
The Equalization Levy 2.0 does not apply to transactions covered by the Equalization Levy under the Finance Act of 2016.
Thus, EL 2.0 does not apply to services such as online advertising, the supply of digital space for online advertising, or other comparable activities.
EL 2.0 applies to non-resident e-commerce operators who sell things online, provide services online, or do both.
EL 2.0 applies to non-resident e-commerce businesses that provide to

1. Person resident in India
2. Person using an Indian IP address
3. Non-resident in specific cases.

The threshold for equalization 2.0 is Rs 2 crore.
The EL 2.0 will be imposed only if the total amount of consideration received for such defined services in the preceding year exceeds Rs. 2 crore.
EL 2.0 is levied at a 2% rate on the amount of consideration received/receivable by the non-resident.
The non-resident e-commerce operator is liable for depositing the EL amount to the Government treasury & complies with the statutory requirements viz. the filing of EL return, etc.
The onus of compliance on the non-resident e-commerce operator EL 2 does not apply if the e-commerce operator has a Permanent Establishment in India and the e-commerce supplies or services are effectively linked to such a Permanent Establishment.

In October 2021, G20 nations reached a worldwide agreement to impose a 15% corporation tax and reallocate taxation rights for big profitable multinational businesses (MNEs) to countries where they sell goods and services.

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Equalisation levy a sovereign right, FM