India and US Reach Settlement on 2% Equalisation Levy

On Wednesday, India and the US agreed to settle on a 2% equalisation levy or digital tax imposed on e-commerce operators. India and the US agreed to the settlement based on the 21 October joint statement framework on the unilateral measures agreement signed by countries like the UK, France, Austria, Spain, and Italy. 

Under the agreement, India will continue to impose the equalisation levy until 31 March 2024 or until pillar one implementation of the OECD agreement on taxing multinationals and cross-border digital transactions. The US will also terminate the trade tariff actions adopted in response to the Indian equalisation levy.

Agreement on 2% Equalisation Levy

India and US will be in close contact to ensure a common understanding of the respective commitments and resolve differences of views on the equalisation levy agreement through constructive dialogue. The finance ministry stated that India and US will finalise the final agreement terms between both countries by 1 February 2022.

The agreement between India and the US represents a pragmatic solution helping the countries to focus their collective efforts on the ‘OECD/G20 Inclusive Framework on BEPS’ agreement on a multilateral tax regime implementation. 

OECD Agreement 

The agreement between India and US is similar to the 21 October agreement of the US with France, Austria, Italy, the UK, and Spain on a transitional approach to existing unilateral measures and implementing pillar one of the OECD global taxation framework.

The proposed two-pillar solution of the global tax deal consists of pillar one, which is on the reallocation of an additional share of profits to the market jurisdictions and pillar two, consisting of minimum tax subject to tax rules.

About 136 countries agreed on the OECD framework agreement, including India and US, to address the tax challenges and problems arising from the digitalisation of economies under a two-pillar solution. The OECD agreement pillar one will apply to Multinational Enterprises (MNEs) with global turnover above 20 billion euros and profitability above 10%. Pillar two of the OED agreement introduces a global minimum corporate tax rate fixed at 15%.

As per the agreement between India and the US, India will continue to impose a 2% equalisation levy on digital operators. The agreement will be valid from 1 April 2022 until implementing the OECD agreement pillar one or 31 March 2024, whichever is earlier.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in