Digital tax for US companies to stay until OECD pact comes into force

What is the News?

India and US have agreed on a “transitional approach” to digital service tax imposed by the Indian Government.

Background

In 2016, India had introduced a 6% equalisation levy for digital advertising services. Later, in April 2020, it widened the scope to impose a 2% tax on non-resident e-commerce players.

However, the United States Trade Representative(USTR) had threatened to initiate retaliatory trade action against India and other countries that imposed unilateral taxes such as equalisation levy.

What has been done now?

India and US have signed an agreement on a “transitional approach” to digital service tax imposed by the Government of India.

Under the agreement, the equalisation levy imposed by India on digital players will continue until a global agreement on the minimum corporate tax rate for taxing multinational enterprises(MNEs) comes into effect on March 31, 2024, or whichever is earlier. 

On the other hand, the United States has committed to withdraw its threat of retaliatory trade action against India.

This agreement is similar on the lines of the pact agreed between the US and Austria, France, Italy, Spain and the United Kingdom.

What is the Global Agreement on Minimum Corporate Tax Rate?

Read here: Global Agreement on Minimum Corporate Tax Rate

Source:  This post is based on the following articles 

• “Digital tax for US companies to stay until OECD pact comes into force” published in Business Standard on 25th November 2021.
• “India, US finalise deal on digital service tax” published in TOI on 25th Nov.2021