Bombay Chartered Accountants Society Fire Side Chat on 19 th October, 2016 Part 4 Equalisation Levy or E-Commerce Taxation CA chatting with CA Sushil Lakhani Mumbai www.rashminsanghvi.com
2 Criticisms of Equalisation Levy This is an Indian subject. As a member of E- Commerce Committee now looking after the subject, I have limitations on what I can discuss here. The Criticisms can be divided into two parts: 1. Relating to the law passed by Indian Parliament. This, I won t discuss. However, I will place the criticisms here for information.
3 Conceptual Criticisms 2. Conceptual criticisms of Equalisation Levy. I will respond to these criticisms. It should be noted that what I present here are purely my personal views and these are neither binding on any one nor any indication of what Committee will discuss/ decide.
Criticisms of Equalisation Levy Indian Law 4 EL is similar to Income-tax on Royalty & FTS. It will be covered under Article 2(4) of the Treaty. Treaty will prevail over ITA. India cannot levy such a tax on NRs. Whole burden of the tax falls on Indian Residents. Is that the purpose? Assuming NR is to bear the tax; he does not get credit against his COR taxes. It will still not cover companies like Apple & Amazon selling goods via E-Commerce. (Not to be discussed.)
5 Conceptual issues No Other Country has imposed such a tax. Why India is imposing such a tax? Indian EL is not what Action Report No. 1 suggests. Attempt is to tax NR on his foreign business income. Indian SC has held it to be beyond India s Jurisdiction. India is not COS. A COM or COP cannot tax a NR business income. reports recommend aligning tax rights with value creation. COM or COP do not create value.
Responses to Conceptual Criticisms 6 Illustrations of In-Box thinking. Before 1947, it was a belief that: Brahmins are superior to the rest of the castes. Within Brahmins, Males are superior to Females. Daughters are not to get any inheritance rights in parents estate.
7 Out of Box Thinking Indian Constitution has thrown away all these traditional ideas including rights of inheritance governed by Hindu Law. All Indians are Equal. This is out of Box thinking. Though, in practice, some of the myths still continue in India & even world wide.
8 Another Illustration of In/Out of Box Thinking. Traffic Rules
Conventional Horse Carriage 9
Initial Design of a Motor Car- Remix of a Horse Carriage 10 Motorised Car manufacturers replaced the horse by a motorengine. Everything else was kept similar to a horse carriage. They could not think Out of Box. Initially several car manufacturers went insolvent.
Modern Driverless Car 11 Once the In Box Thinking was scrapped, car designs have changed significantly.
An Aircraft 12 With advancing technology, means of transport have changed significantly.
13 From Horse Cart to Car, Car to Aircraft.. All are vehicles, but the RULES of traffic management are different.
Aircraft Control Tower 14 The signal systems for cars & aircrafts are different. Traffic Rules are completely different.
15 Can the Pilot ask:
Outcome of applying road traffic rules to aircrafts 16 If E-Commerce taxation stays within OECD parameters this will happen. PE & old rules of international taxation are like Road Traffic Rules. E-Commerce taxation rules should be like Aircraft Traffic Control (ATC).
17 Road Traffic Rules are valid for cars etc. & invalid for aircraft. Rules must change as technologies change.
Boxes within Legal Field Accepted International Traditions. International Law. 18 Constitution of India ITA. As passed. Interprete the written words Palkhivala. He was great. But in tax law. Did not travel outside Indian law. OECD Colonisation Box 1 99% of the tax professionals & administrators interprete law, the written words. Box 2 Rare persons look at a macro level the Constitution, Jurisprudence etc. Even late Mr. Palkhivala did not look at International Taxation. Box 3 International Taxation bound by OECD & UN Models, etc.
19 Come up & above OECD & UN Models Come out of ALL the 3 Boxes. Consider what is Fair & Just for all.
20 There are people who won t come out of the Boxes. And there are people ready to come out of all boxes. The 1 st category will criticise the 2 nd.
David Vs. Goliath 21
22 Disruptive Technologies. Avalanche of changes. David Vs. Goliath is an old story. Today there are 15 Davids. There are almost 15 nations preparing their own tax laws for taxing NR E-Commerce Service Provider.