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In January 2021, the OECD published “Updated Guidance on Tax Treaties and Impact of the Covid-19 pandemic” clarifying concerns related to creation of PEs, potential change in residence for entities and individuals , etc. The OECD had issued an earlier guidance in April 2020, clarifying certain positions, which has now been updated.
Several aspects have been touched upon in the Guidance. On the creation of PEs, OECD has clarified that temporary working from home, conclusion of contracts from the Home Office, should not create Fixed Place / Agency PEs for businesses. It is also clarified that a Construction Site PE would not be regarded as ceasing to exist when work is temporarily interrupted. On similar lines, it has been clarified that individuals participating in management decisions of an entity will not have an impact on the constitution of Place of Effective Management. Similar clarifications have been issued in the context of residence of stranded individuals, employees remotely working from other jurisdictions.
The U.S. administration had announced initiation of investigation under Section 301 of the U.S. Trade Act, 1974 against the Equalisation Levy implemented by India. The Ministry of Commerce and Industry has published its response to Sec 301 Report of US on India’s Equalisation Levy 2.0. In its Response, India has strongly defended the levy on the ground that:
a. The Equalisation Levy was applied prospectively, and has no extra-territorial application; b. The Equalisation Levy does not discriminate against any US companies, as it applies equally to all non-resident e-commerce operators, irrespective of their country of residence; c. The Equalisation Levy was one of the methods suggested by 2015 OECD/G20 Report on Action 1 of BEPS Project which was aimed at tackling the taxation challenges arising out of digitization of the economy; and d. The purpose of the Equalization Levy is to ensure fair competition, reasonableness and exercise the ability of governments to tax businesses. Finally, the report states that the Government of India will examine the determination / decision notified by the US in this regard, and would take appropriate action keeping in view the overall interest of the nation.
a. The Equalisation Levy was applied prospectively, and has no extra-territorial application;
b. The Equalisation Levy does not discriminate against any US companies, as it applies equally to all non-resident e-commerce operators, irrespective of their country of residence;
c. The Equalisation Levy was one of the methods suggested by 2015 OECD/G20 Report on Action 1 of BEPS Project which was aimed at tackling the taxation challenges arising out of digitization of the economy; and
d. The purpose of the Equalization Levy is to ensure fair competition, reasonableness and exercise the ability of governments to tax businesses. Finally, the report states that the Government of India will examine the determination / decision notified by the US in this regard, and would take appropriate action keeping in view the overall interest of the nation.
Martin Wörlein
Partner, Head of India practice
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