MasterCard’s application before India’s High Court: the equalisation levy dilemma!

By Ashish Sodhani, Leader, International Tax, Nishith Desai Associates, Mumbai

The Delhi High Court on August 18 ruled in favor of multinational financial services corporation, MasterCard, in its application seeking to stay the payment of India’s equalisation levy.

The dispute arose in the context of MasterCard’s appeal to the High Court of a 2018 Authority for Advance Rulings decision. The Authority for Advance Rulings had ruled against MasterCard, holding that MasterCard’s activities in India formed a permanent establishment. This ruling was widely criticized as unreasonably lowering the threshold for the formation of a permanent establishment in India, and it was almost certain at the time that it would be appealed to the High Court by MasterCard. And so it was!

The issue of whether MasterCard has a permanent establishment in India or not will affect whether it will be liable for equalisation levy, prompting MasterCard’s recent request before the High Court for the stay of payment.

India’s equalisation levy

India’s equalisation levy was introduced in 2016 as part of the Finance Act, 2016. It imposes a 6% tax on consideration in excess of INR 100,000 (approx. USD 1,500) received by a non-resident for provision of specified online advertising services.

With effect from April 1, 2020, the scope of the equalisation levy has been expanded to cover non-resident e-commerce operators making supplies in India or having a nexus with India. A 2% equalisation levy is imposed on the amount of consideration received or receivable by an ‘e-commerce operator’ from ‘e-commerce supply or services’ made or provided or facilitated by or through it to  a person resident in India; or a non-resident in certain circumstances, inter alia, to a person who buys goods or services or both supplied by the ‘e-commerce operator’ using an IP address located in India.

The term ‘e-commerce operator’ and ‘e-commerce supply or services’ has been defined expansively and could potentially cover all sorts of digital transactions into India.

However, one of the exceptions to the application of the equalisation levy is that is shall not be charged in cases where the e-commerce operator making or providing or facilitating e-commerce supply or service has a permanent establishment in India and such e-commerce supply, or service is effectively connected with such permanent establishment.

 It is in this context that MasterCard filed an application for a stay of payment of equalisation levy before the Delhi High Court.

Proceedings before the High Court

MasterCard’s argument in its application was that since its case under the petition was that it did not have a permanent establishment in India, it may become liable to pay equalisation levy and any further payment would result in double taxation. Hence, a stay should be granted to the application of equalisation levy in its case.

The Delhi High Court asked the tax department to submit its reply on the issue.

In its reply, the department stated that the tax department is bound by the order of the advance ruling and in conformity with the law, the tax department has no desire or authority to collect equalisation levy from MasterCard in respect of the income on which tax has been paid by MasterCard either as advance tax or withholding tax.

Further, the government said that the event that the Delhi High Court ruled that MasterCard does not have a permanent establishment in India, it would result in MasterCard getting a refund of taxes paid and would be liable to pay equalisation levy with interest. It is only once the petition in relation to a permanent establishment is decided, the consequential action under the tax act or under the equalisation levy provisions would be taken.

MasterCard drew comfort from the fact that it would not be subject to double taxation and did not press further.

 It requested the High Court to record the statement of the tax department and that it be held to be bound by it.

The High Court accepted the plea and disposed the application.


The action of MasterCard to file an application to stay the equalisation levy seems premature as there was no real issue at hand that required adjudication.

While MasterCard got some relief on the issue of double taxation, it may be that the correct time to approach the court would have been if and when equalisation levy proceedings were initiated against it by the tax department.

However, it would have been interesting to see if the court did rule on the issue of interest on equalisation levy, which issue was actually side-lined by the court due to the manner in which the proceedings took place.

The other question that also comes up is whether equalisation levy is actually applicable to MasterCard.

While there was no discussion around that, can it be concluded in MasterCard’s view equalisation levy should apply. Other than that, would such a move keep MasterCard in the tax department’s radar once the issue of permanent establishment is resolved?

No doubt that the equalisation levy provisions are quite broad and encompass almost all types of digital transactions in India. It is still for each entity to analyse the law and determine whether it is subject to it or not. It will be interesting to see how each of these things pan out, especially considering this judgment of the High Court.

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