In what would impact majors like Airbnb, booking.com, Agoda, Zoom, GoDaddy, Tencent, Expedia, Google, Facebook, Netflix and many more, fresh concerns have been raised by stakeholders about the provisions moved by the government to bring in non-resident e-commerce operators within the ambit of equalization levy or what is popularly known as Google tax.
Non-resident e-commerce operators are the ones who do not have a permanent establishment in India but do have a presence in the country.
Stakeholders have now approached the Central Board of Direct Taxes - CBDT, the key direct tax policymaking authority under the Revenue Department of Finance Ministry, regarding the levy of two percent tax to be paid by non-resident e-commerce operators on consideration received or receivable from the online sale of goods or online provision of services made or provided or facilitated by it to Indian residents or using Indian Internet Protocol (‘IP’) address.
It was in the passage of the Finance Act 2020 that the government had introduced this levy. Equalisation Levy is a levy on the procurement of online advertising from a non-resident or a foreign company. In this case, a six percent levy is to be paid by the payer in India.
From April 01, 2020, it has also been extended to non-resident e-commerce operators providing goods or services to residents in India and to non-residents if it pertains to online advertising targeted in India and sale of data for Indian consumers. In this case, the levy shall be two percent and shall be paid by an e-commerce operator only on a quarterly basis. The government has also said that the e-commerce operator shall also be required to file an annual return in Form-1.
However, stakeholders feel that there are still many ambiguities which the government should clarify as the law has a lot of interpretation issues.
"The law is leaving a lot of unanswered questions, such as - whether this levy covers software subscriptions through online modes, refund mechanism of equalisation levy in case of sales returns or defective supplies, determination of the residential status of customers based out of India, claims of credit for equalisation levy paid in India, valuation mechanism for user data, the scope of consideration on which equalisation levy is to be charged, clarity on appeal mechanism to sort out disputes related to levy, etc," said Nangia Andersen Director, Sandeep Jhunjhunwala.
"Also, the one year gap between enforceability date and income tax exemption availability, plus the constitutional validity of taxing transactions between two non-residents, as a complete offshore transaction and in absence of nexus with India, are in itself not free from doubts," he added.
Other issues remain like what actually constitutes an online sale or does the sale concluded on e-mail correspondences also make up for transaction covered under equalisation levy? What should be treated as the meaning and scope of ‘Consideration received or receivable’ under Section 165A of Finance Act 2016, on which Equalisation Levy is to be charged?
Experts say businesses within this new levy could include non-residents operating as online marketplaces, travel aggregators, market research platforms, subscription-based platforms, including social media, cloud services, search engines, dating, and matrimonial services, streaming and online gaming, music, movies, books, international tours and travel, hospitality, online card payment networks, cross border money transfer service providers, e-wallets, payment banks, etc.
Levy could also cover digital/online services provided by multinational enterprises to their Indian group entities, such as transactions involving data center operations, network security services, etc, which are facilitated by a non-resident entity through a digital or online platform owned, operated or managed by it. Thus, including all the major online operators such as Netflix, Google, and many more.
"This issue has been bothering a lot. Important being that no credit for Equalisation Levy can be taken by the non-residents as it is a separate levy which is not under Income-tax and hence is not covered by the treaty protection. This will impact foreign e-commerce portals targeting Indian consumers for the sale of goods and services. An example of nexus in the case of an offshore transaction would be when an e-commerce portal sells the data of Indian consumers to any other foreign portal. However, enforceability, in this case, will be a challenge," said Amit Maheshwari, Partner AKM Global.
Similar issues were raised by Jhunjhunwala. "Enforcement by the income tax authorities to bring non-resident e-commerce operators under the ambit of this expanded regime could be an interesting area to watch out for. The mechanism to detect operators with no tangible presence in India must be proficient enough. Representative assessee or agent route under Section 163 of the Income Tax Act could be one such way, though it will have limitations to apply only in select cases covering B2B transactions and where a business connection could be established with the non-resident operator or where the non-resident has an Indian business presence," said Jhunjhunwala.
The government sources say that the tax department is analysing these representations and is soon expected to issue some clarity.