India and the United States have extended the validity of an agreement, which allows New Delhi to levy a 2% tax on US digital service providers till June 30, 2024, the finance ministry said on Friday. The tax, known as “equalisation levy”, allows India to tax e-commerce supply of services from American companies, such as Apple, Netflix and others.
The agreement, rather a joint statement, has been extended, as no consensus yet has been reached on the Pillar 1 tax package. Originally signed in 2021, between India and US, the statement intended to give India the right to impose the equalisation levy on American digital service providers, until Pillar 1 is implemented.
The Pillar 1 tax regime is part of the OECD BEPS framework, signed by over 130 countries, and it aims to levy a tax on the digital economy. The Pillar 1 negotiations are mainly aimed at reallocating the taxing right on US-based digital giants, allowing about $200 billion of corporate profits to be taxed in the countries where the companies do business.
On October 21, 2021, the United States, Austria, France, Italy, Spain, and the United Kingdom reached a political compromise on the transitional approach to the unilateral measures in force while Pillar 1 is implemented. The compromise is reflected in the joint statement that was issued by those six countries on that date.
On November 24, 2021, India and the United States agreed that the same terms that apply under the October 21 Joint Statement shall apply between India and the United States with respect to India’s charge of 2% equalisation levy, said the finance ministry. The validity of this agreement was from April 1, 2022 till implementation of Pillar 1 or Marc 31, 2024, whichever is earlier, which has now been extended till June 30, 2024.
Aravind Srivatsan, tax leader, Nangia Andersen said: “The US as expected has rushed to extend the status quo on the rights enjoyed by US MNE on digital taxes (equalisation levy) paid in india, pending a consensus on pillar 1 within the sunset date.”
“The overall arrangement is expected to see further extensions till final consensus emerges on Pillar 1,” he said.
