Equalisation levy (EL) is Sovereign Right

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Equalisation levy (EL) is Sovereign Right

Recently, the Finance Minister has clarified that the equalization levy that India imposes on the supply of services by multinational companies is a “sovereign right”.

The Finance Minister has justified the 2% equalization levy imposed by India on the supply of services by multinational enterprises. According to the Finance Minister, it is a sovereign right to tax revenue from operations within the country.

Technology giants and e-commerce companies have been demanding withdrawal of the 2% equalization levy imposed on non-resident companies from India.

The concept of equalization levy was introduced in the year 2015 as an interim measure. It was presented as one of three measures to tackle the emerging problem due to digital transactions. This was proposed by the Organization for Economic Co-operation and Development (OECD) in the Pillar-1 Action Plan of the Base Erosion and Profit Shifting (BEPS) project.

It consists of two pillars:

  • Pillar-1: It applies to about 100 largest and most profitable multinational companies (global turnover of over EUR 20 billion and profits of more than 10%). It shares some of the profits of companies in the jurisdictions where they sell their products or provide their services.
  • Pillar-2: This is on large multinationals, such as companies with annual revenues in excess of EUR 750 million. It brings companies within the ambit of the global minimum corporate tax of 15% from the year 2023.

BEPS refers to the evasion or evasion strategies used by multinational companies. Under this, these companies take advantage of the loopholes and conflicting provisions in the tax rules to avoid paying tax.

Source – The Hindu

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