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MNCs could face double taxation or get tax arbitration due to new digital transaction law

MNCs could face double taxation or get tax arbitration due to new digital transaction law

As India introduced an equalisation levy at 2%, many companies may be staring at the possibility of double taxation on digital transactions such as buying software or equipment.

Currently, many of them pay a 10% royalty withholding tax on purchases from multinationals located outside India.

India has brought in new regulation effective April 1 whereby the 2% tax could be levied on any purchase by an Indian or India-based entity through an overseas ecommerce platform.

Tax experts say lack of clarity around the levy means different companies were interpreting it in a different way. Some companies are being cautious and paying 12% on these transactions — royalty withholding tax plus the equalisation levy. Others are opting for either 10% or 2% tax.

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