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Equalisation Levy – India’s first move to tax digital transactions

19 Apr 2016

Taxation of digital transactions and digital-based businesses has proven to be a significant challenge for tax authorities since the advent of such transactions and businesses. It was therefore no surprise that this formed a significant focus of the ongoing OECD led Base Erosion and Profit Shifting or BEPS exercise, aimed at international tax planning by multinational enterprises. Taxand India explores this matter further. 

In October 2015, the OECD released its final report under the BEPS initiative on Action Plan 1 relating to Addressing the Tax Challenges of the Digital Economy. 

The report identified 3 options for addressing concerns in respect of corporate tax planning in the digital world, being: (i) new nexus based rules centered on the concept of “significant economic presence”, (ii) a withholding tax, and (iii) an “equalisation levy”.  

However, none of these options was recommended by the OECD.  The report suggested that more work needs to be done and leaned on other action plans to address some parts of the difficulty in taxation of transactions in the digital world. 

Finally the report has left it open for countries to adopt any of the identified options in their domestic tax laws, though with due caution.  

Discover more: Equalisation Levy – India’s first move to tax digital transactions

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Taxand's Take

While the levy is only proposed at this stage, its legislation does not appear to be distant. India, as with some of the other positions taken by it in respect of taxes, has taken a bold first step.  

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