India: Reimbursements to U.S. company for online advertising expenses not subject to equalization levy (High Court decision)
No basis for “piercing the corporate veil” in the absence of impropriety or misuse of corporate form
The Madras High Court held (WP No. 6176 of 2022) that an Indian company’s reimbursements to its U.S. subsidiary for online advertising expenses were not subject to the equalization levy (EL) because reimbursements for online advertising are not explicitly included as a “specified service” for EL purposes under the Finance Act, 2016.
The court rejected the tax authority’s allegation that the Indian company (and not the U.S. subsidiary) was the real recipient of the services, and thus the payments were not reimbursements, but were payments for online advertising services received by the Indian taxpayer subject to the EL.
The court further held that “piercing the corporate veil” was not warranted because there was no evidence of impropriety or misuse of the corporate form, and mere control and active involvement of the Indian company in the affairs of the U.S. subsidiary was insufficient grounds for treating the arrangement as a device to evade the EL.
Read a June 2026 report prepared by the KPMG member firm in India