Indumugi C. & Disha Jain R in this article talks about WTO obligations of India and the two interim digital tax measures they launched against the international tax law framework.
Abstract
This article follows two interim digital tax measures introduced by India against the framework of international tax laws and India‘s WTO obligations. India has introduced an equalization levy which takes the form of a standardized levy on specified services, and a Significant Economic Presence (SEP) nexus rule which shows profit attributability of digital businesses to India. These taxes were introduced to fill legal gaps that gave way for profitable artificial arrangements in the digital economy even without a physical taxable presence in the source country. The Organization for Economic Cooperation and Development (OECD) set with the task of reaching a global solution, has been deliberating on tax issues arising out of digitalization since 1997 till date. Growing impatience has made countries such as India propose interim digital tax solutions. In following these digital taxes against the backdrop of international tax and trade rules, the article identifies six ways in which they have contributed to the indeterminacy in the tax environment which is in turn affecting international competitiveness. The features of the tax measures that contributed to the indeterminacy are the nature of the equalization levy as a quasi-levy; extraterritoriality of the digital taxes; the incidence of levy as ―online sale of goods‖; tax implications of the personal data law; unilateral nature of the levy; and its effect on international competitiveness. In talking about a better way for interim digital taxes, this article argues that while the SEP test is less distortive than the equalization levy, it is also difficult to quickly repeal any interim tax measure. Although, there is less willingness to wait till global solution is reached, the two digital tax measures could be brought in alignment with the core principles of international taxation and trade obligations.