MasterCard not required to pay Equalisation Fee: Delhi High Court

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a) The Delhi High Court, on Tuesday, disposed-off a plea by Mastercard after the Income Tax Department conceded that no equalization fee will be paid in case of Permanent Establishment (PE).

b) Introduced in 2016, Equalisation Levy, also known as ‘Google Tax’, initially was applicable to payments for digital advertisement services received by non-resident companies without a permanent establishment here if the services exceeded ₹1 lakh a year.

c) The rate of tax was 6 per cent. The companies using these services are required to withhold the tax amount. In the 2020-21 Budget, the government widened the ambit of the levy by including e-commerce companies.

d) The applicable tax rate is two per cent (plus a surcharge) on the amount of consideration received/receivable by an e-commerce operator. This has come into effect from April 1. Mastercard is a global payment and technology company.

e) It moved Delhi High Court, seeking a stay on equalization levy. In its petition before the court, Mastercard cited the Authority of Advance Rulings (AAR) for the Income Tax decision of June 2018.

 The AAR Ruling said, “the applicant, Mastercard has a PE in India under the provisions of Article 5 of the India-Singapore DTAA, in respect of the services rendered/to be rendered with regard to the use of a global network and infrastructure to process card payment transactions for customers in India. There is fixed place PE, service PE, and dependent agent PE.”

f) The MasterCard filed a writ petition against the stand of the advance ruling authority which says that MasterCard has a fixed permanent establishment in India, and hence it should pay tax on income earned here.

g) The revenue department said that it has no desire of collecting equalization levy in respect of income on which tax has already been paid by MasterCard either by way of TDS or advance tax. Based on the revenue department’s statement, the high court said that the issue stands resolved and hence it disposed of the case.

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