BEPS and Equalization levy

Subject: Economy

Context:

India recently decided to impose digital services taxes on non-resident e-commerce companies.

Concept:

BEPS

Base erosion and profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. Developing countries’ higher reliance on corporate income tax means they suffer from BEPS disproportionately.

Equalization levy

Equalization Levy was introduced in India in 2016-2017, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India.

• Equalization Levy is a direct tax, which is withheld at the time of payment by the service recipient.
• The two conditions to be met to be liable to equalization levy:
• The payment should be made to a non-resident service provider;
• The annual payment made to one service provider exceeds Rs. 1, 00,000 in one financial year.
• The following services covered:
• Online advertisement
• Any provision for digital advertising space or facilities/ service for the purpose of online advertisement;
• Currently the applicable rate of tax is 6% of the gross consideration to be paid.