India, US Agree On Transitional Approach On 2 Per Cent Equalisation Levy On E-Commerce Supplies

India and the United States on Wednesday (24 November) agreed for a transitional approach on 2 per cent equalisation levy or digital tax imposed by New Delhi on e-commerce operators.

Under the agreement, India wil continue to the impose the levy till 31 March 2024, or till the implementation of the Pillar 1 of the Organisation for Economic Cooperation And Development (OECD) agreement on taxing multinationals and cross-border digital transactions.

The settlement is broadly on the lines of the one reached under the Unilateral Measures Compromise reached among the UK, Austria, France, Italy and Spain with the US on 21 October 2021, reports Economic Times.

The US will terminate the trade tariff actions it had announced in response to the levy and will not take any further actions.

"India and United States have agreed that the same terms that apply under the October 21 Joint Statement shall apply between the United States and India with respect to India’s charge of 2 per cent equalisation levy on e-commerce supply of services and the United States’ trade action regarding the said Equalisation Levy," the Finance Ministry said in a statement on Wednesday (24 November).

"However, the interim period that will be applicable will be from 1st April 2022 till implementation of Pillar One or 31st March 2024, whichever is earlier," the statement said.

The statement added that India and the US will remain in close contact to ensure there is a common understanding of the respective commitments, and any further differences of views on this matter are resolved through constructive dialogue.

The final terms of the agreement will be finalised by 1 February 2022, the statement said.

"Under this agreement, and consistent with and applying the same terms as the earlier agreements with Austria, France, Italy, Spain, the United Kingdom, and Turkey, in defined circumstances the liability from India's equalisation levy on e-commerce supply of services that US companies accrue in India during the interim period will be creditable against future taxes accrued under Pillar 1 of the OECD agreement. The period during which the credit accrues will, however, be from April 1, 2022 until either the implementation of Pillar 1 or March 31, 2024 (whichever is earlier)," the USTR said in a statement.

According to the USTR statement, the US will terminate the currently-suspended additional duties on goods of India that had been adopted in the DST Section 301 investigation.

The statement added that USTR was proceeding with the formal steps required to terminate this Section 301 trade action and in coordination with Treasury, will monitor implementation of the agreement going forward.