As someone currently preparing for the CA Final exams (Group 1), I’m grappling with a specific scenario related to international taxation, particularly the applicability of equalization levy. During my articleship with a mid-sized firm, I encountered a case where a non-resident e-commerce operator provided online advertising services to an Indian company. The total consideration exceeded INR 1 crore, so naturally, my initial thought was that Equalisation Levy 2.0 would apply as per Section 165A of the Finance Act, 2016.
However, the non-resident also has a Permanent Establishment (PE) in India, albeit one not directly connected to the provision of these specific advertising services. Now, I’m unsure whether the existence of any PE, regardless of its direct involvement, automatically exempts the payment from Equalisation Levy 2.0, shifting the taxation completely to the PE’s profits under the Income Tax Act. Is there any specific clarification from ICAI or any recent case law that clarifies whether the presence of a separate PE, not involved in the advertising service, overrides the Equalisation Levy provisions? Understanding this distinction is crucial, especially given the increasing complexity of cross-border digital transactions and the potential impact on audit engagements.