NEW DELHI: A day after the conclusion of the India-US Trade Policy Forum meeting, the two countries decided on a "transitional approach" to digital service tax imposed by the government, providing it relief from the proposed American retaliatory action, while comforting tech giants such as Amazon, Google and Facebook that face the levy.
The terms of the deal will be the same that were thrashed out between the US and Austria, France, Italy, Spain, and the UK last week. "India and US have agreed that the same terms that apply under the October 21 joint statement shall apply between the US and India with respect to India's charge of 2% equalisation levy on e-commerce supply of services and the US's trade action regarding the said equalisation levy. However, the interim period that will be applicable will be from April 1, 2022 till implementation of Pillar One or March 31, 2024, whichever is earlier," the finance ministry said.
"This compromise represents a pragmatic solution that helps ensure that countries can focus their collective efforts on the successful implementation of the OECD/G20 Inclusive Framework's historic agreement on a new multilateral tax regime and allows for the termination of trade measures adopted in response to the Indian equalisation levy," the US Treasury said.
Rohinton Sidhwa, partner at consulting firm Deloitte India said that it will help ensure that the liability does not exceed the computed liability under Pillar One with credit available in the home country of the company.
Under the global deal Pillar One provides taxing rights to market jurisdictions on part of the residual profits earned by a multinational enterprise (MNE) group with an annual global turnover exceeding 20 billion euros and 10% profitability. Pillar Two requires MNE groups with an annual global turnover exceeding 750 million euros to pay at least 15%.
"This also signals India's commitment to tax certainty as it adopts a more restrained approach in favour of a stable international tax regime. Clearly, India is taking a nuanced and balanced approach to manage its trade, tax and economic interests. Interestingly, 6% equalisation on online ad revenue does not form a part of this deal. While the fine print is awaited, one can take guidance from the deal that the US entered into with the UK, Austria, France, Italy and Spain in October," added Gouri Puri, partner at Shardul Amarchand Mangaldas.