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Taxing foreign digital companies: India must take cue from Europe; consider narrowing scope of Digital Tax

Taxing foreign digital companies: India must take cue from Europe; consider narrowing scope of Digital Tax

Internationally, the widespread growth in digitisation of business has created challenges in allocation of taxes between market jurisdictions and countries where these companies are headquartered. It is widely perceived that large digital companies pay inadequate corporate tax in countries from where they receive major revenue share. Recognising the need to reform international tax rules for taxing digital companies such that countries get their fair share of taxes, the OECD has been working on proposals for new rules but so far has not arrived at a consensus on the final scope and manner of taxation. Meanwhile, many countries such as France, Italy, Turkey, Austria, UK, Malaysia, Spain etc have either proposed or implemented a unilateral digital tax applicable to digital companies, called as the ‘Digital Services Tax’ (‘DST’).
India was the first country to introduce digital tax called ‘Equalisation Levy’ in 2016 at the rate of 6%. EL 1.0 was payable by Indian residents on online advertisement services purchased from non-resident companies. From 1 April 2020, the scope of equalisation levy has been expanded to include 2% levy on all online sale of goods or services into India by non-resident e-commerce operators (‘EL 2.0’)

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