FINANCE MINISTER says equalisation levy levied by India is a sovereign right.

Why in news?

• FM has justified the 2% equalisation levy (EL) imposed by India on the supply of services by multinational enterprises (MNEs), saying it is a sovereign right to tax revenues earned from operations in the country.
• Tech giants and e-commerce firms have been asking India to withdraw the 2% EL on non-resident companies.
• Equalisation Levy was conceptualized in 2015, as an interim measure, as one of the three measures to tackle the emerging issue from digital transactions proposed by the OECD in Pillar 1 action plan of Base Erosion and Profit Shifting (BEPS) project.
• The equalization levy is aimed at taxing foreign companies which have a significant local client base in India but are billing them through their offshore units, effectively escaping the country’s tax system.
• BEPS refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax.
• Subsequently OECD/G20 inclusive framework on BEPS provides a solution for global tax consists of two pillars:
• Pillar One: Applied to about 100 biggest and most profitable MNEs (global turnover above 20 bilion euros and profitability above 10%), it reallocates part of their profits to places where they sell products or provide services.
• Pillar Two: Applied to larger MNEs, i.e., companies with over EUR 750 million of annual revenue, it subjects them to the global minimum corporate tax of 15% from 2023.