Open Access Research Article
TAXATION OF CROSS-BORDER DIGITAL SERVICES: FROM EQUALISATION LEVY TO SIGNIFICANT ECONOMIC PRESENCE
Abstract
Abstract
The digitalisation of commerce has
exposed the structural incapacity of source-based,
permanent-establishment-centric international tax law to capture value created
through remote, data-driven business models. This paper undertakes a doctrinal
and analytical examination of India's journey through three successive - and at
times overlapping - unilateral and multilateral responses to this challenge:
the Equalisation Levy (2016-2025), the Significant Economic Presence ('SEP')
rule under Section 9(1)(i) of the Income-tax Act, 1961, and the emerging
Organisation for Economic Co-operation and Development ('OECD')/G20 Two-Pillar
Solution, with particular reference to Pillar One's Amount A. Adopting a
historical-doctrinal method supplemented by policy and quantitative analysis,
the paper traces the legislative genealogy of the Equalisation Levy from its
introduction as a 6% tax on online advertising in the Finance Act, 2016,
through its 2020 expansion to e-commerce supplies, to its complete withdrawal
by the Finance (No. 2) Act, 2024 and the Finance Act, 2025. It critically
evaluates the treaty-compatibility concerns, double-taxation risk, and
definitional overreach that plagued the levy, and assesses whether the SEP rule
- now India's principal domestic nexus doctrine for digital income - is legally
and administratively capable of filling the resulting vacuum, particularly
given its continued subordination to India's bilateral tax treaty network under
Section 90(2). The paper further situates India's experience within the global
trajectory of the OECD Inclusive Framework, analysing the Multilateral
Convention to Implement Amount A of Pillar One and the continuing stalemate in
its ratification as of 2026. Drawing on statutory text, judicial precedent,
OECD instruments, and empirical revenue data, the paper argues that India's
abrupt withdrawal of the Equalisation Levy - undertaken substantially for
trade-diplomatic rather than tax-policy reasons - has created a transitional
governance gap that SEP alone cannot address without treaty renegotiation,
Mutual Agreement Procedure reform, and domestic administrative
capacity-building. The paper concludes with a set of calibrated recommendations
for Indian policymakers pending global consensus on Pillar One.
Published Paper
Author Details
Authors: ABHISHEK VERMA
Registration ID: 1013064 | Published Paper ID: IJLRA13064
Year: Aug-2026 | Volume: 3 | Issue: 5
Approved ISSN: 2582-6433 | Country: Delhi, India
Page No.: 1678-1699
Article Information
TAXATION OF CROSS-BORDER DIGITAL SERVICES: FROM EQUALISATION LEVY TO SIGNIFICANT ECONOMIC PRESENCE
Authors: ABHISHEK VERMA
- Journal IJLRA
- ISSN 2582-6433
- Volume 3
- Issue 5
About Journal
International Journal for Legal Research and Analysis
- AbbreviationIJLRA
- ISSN2582-6433
- AccessOpen Access
- LicenseCC 4.0
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