India: Taxing cross-border e-commerce transactions

As an interim measure to tax transactions arising in a digital economy, India, inter-alia, introduced ‘Equalisation levy’ in the year 2016. This levy was applicable on the gross consideration received by a non-resident for online advertisement, digital advertising and related services from specified persons.

In the year 2020, the scope of equalisation levy was extended to cover non-resident e-commerce operators within its ambit. As per the expanded provisions, consideration received by a non-resident e-commerce operator from e-commerce supply or service is liable to equalisation levy. It is pertinent to note that the scope and coverage of these provisions is very wide and can have potentially far-reaching implications for transactions which may not be regarded as in the nature of e-commerce as understood in common parlance. For instance, even intra-group transactions placed over an intranet/ ERP could get covered.

Further, the way the provisions are worded seem to suggest that the equalisation levy applies to the entire gross amount of consideration received by the e-commerce operator and not just on the commission or service fee retained by it.

There may also be a situation where the same transaction is subjected to equalisation levy and also to tax in India as royalty or fees for technical services. Also, given that the levy is not in nature of an income-tax, getting credit of the same in foreign jurisdiction seems uncertain. The Multinational entities would need to evaluate the implications of this levy on their business and operating models.

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