India, US reach compromise on digital tax
GS Paper - 3 (Economy)
India and the US have reached a compromise on the 2 per cent equalisation levy or digital tax on e-commerce supply of services charged by the country and the US’ proposed retaliatory action against it. The two countries agree on the terms of Unilateral Measures Compromise on 21 Oct 2021 agreed upon by the US with the UK, Austria, France, Italy and Spain, according to an official release issued by the Finance Ministry on 24 November 2021.
What the release said
- New Delhi has bought itself time till 1 April 2022 for the start of the implementation period for the interim arrangement.
- Between India and the US, the interim period would commence from 1 April 2022 till implementation of Pillar One or 31 March 2024, whichever is earlier.
- The US had announced in January this year that India’s equalisation levy was discriminatory and actionable, and in March, proposed 25 per cent retaliatory tariffs on about 40 products including shrimps, wooden furniture, gold, silver and jewellery items and basmati rice.
- The levies could add up to about $55 million which was the approximate amount of the DST payable by US-based companies such as Google, Amazon, Linkedin and Facebook, as per calculations made by the USTR.
- On 8 October 2021, India and US joined 134 other members of the OECD/G20 Inclusive Framework (including Austria, France, Italy, Spain, and the United Kingdom) in reaching agreement on the statement on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy.
- On 21 October 2021, the US and Austria, France, Italy, Spain, and the United Kingdom reached an agreement on a transitional approach to existing Unilateral Measures while implementing Pillar 1.
- The proposed two-pillar solution of the global tax deal consists of two components — Pillar One, which is about reallocation of an additional share of profit to the market jurisdictions and Pillar Two, consisting of minimum tax and subject to tax rules.