SYLLABUS SECTION: GS III (ECONOMY)
WHY IN THE NEWS?
India’s equalization levy, or Google tax on offshore digital economy firms, is set to stay beyond 2023.
- EL(brought through Finance Bill 2016) in Google tax is an interim measure to tackle issues from cross-border digital transactions of foreign digital firms.
- In 2016, India introduced EL applicable to payments for digital advertisement services received by non-resident companies without a permanent establishment (PE) here, if these exceeded ₹1 lakh a year.
- It was later expand to non-resident e-commerce operators with the levy at the rate of 2%.
- Global tax reform under OECD’s two-pillar plan has been agree to by 140 nations to reform international tax rules and ensure that multinational enterprises (MNEs) pay a fair share of tax wherever they operate and earn profits.
- Implementation challenges:
- Divergent interests: European countries had prioritize the question of digital taxation, while the US had prioritized the global minimum rate.
- Legislators in both U.S. and Europe are now struggling to pass the laws needed to implement the deal. Eg. Hungary has recently withdrawn support for minimum corporate tax in the EU.
- EL was propose by OECD under its Action Plan on Base Erosion and Profit Shifting (BEPS). BEPS refers to tax planning strategies used by MNEs that exploit gaps and mismatches in tax rules to avoid paying tax.
Read more: UPSC CURRENT AFFAIRS