Taxsutra Pro Issue 4 : Equalisation Levy - Recovery from Non-Residents within the Existing Legal Frameworks 

"An important distinction between the Indian Equalisation Levy ("EL") introduced by Finance Act, 2016 and the expansion of the EL provisions by Finance Act 2020 (“Expanded Levy”) is that the latter has to be collected from the non-resident taxpayers. The aim of this paper is to understand the recovery mechanism, i.e. the legal framework under which the Indian government can enforce payment of the Expanded Levy from non-resident taxpayers, especially where they do not have presence or assets in India that could be used to recover the dues. In particular, existing international agreements through which Indian tax dues can be collected in a foreign country are discussed. These include the Convention on the Mutual Administrative Assistance in Tax Matters (the “MAATM Convention”) and the relevant Article on Assistance in Tax Collection in bilateral tax treaties (Article 27 of the OECD Model Tax Convention). The paper identifies potential issues that may arise while using this legal framework for specifically recovering the EL, considers its efficiency and concludes by considering alternatives.

Specifically, 

• Section I contains a brief background on the EL and how it developed in India. 
• Section II covers the tax recovery mechanism under the Income Tax Act, 1961 (“ITA”) for recovery of domestic taxes, along with the special provisions for recovery of taxes from non-residents. This section would thus be useful for recovery of taxes from non-resident taxpayers who have presence, assets or a representative assessee for that income in India. 
• Section III discusses the existing framework for international assistance and co-operation in collection of foreign tax claims, which includes Article 27 of the OECD MTC and the MAATM Convention. This section would be relevant where the non-resident taxpayers do not have sufficient assets or presence in India and taxes are sought to be recovered from a foreign jurisdiction. 
• Section IV discusses the ITA provisions on tax recovery (discussed in section II) that have been made applicable to the EL.
• Section V lists the potential issues that are likely to arise in recovering the Expanded Levy from foreign jurisdictions using the existing international framework discussed in Section III. 
• Finally, Section VI concludes the paper and considers the possible alternatives for effective collection of Expanded Levy dues from non-resident taxpayers."