India, US Finalise Deal on Digital Service Tax

Post the conclusion of the India-US Trade Policy Forum meeting, the two countries agreed on a “transitional approach” to digital service tax levied by the government, offering it relief from the planned American retaliatory action, while comforting tech giants such as Amazon, Google and Facebook that are laible for this tax.

The provisions of the deal will be the similar that were rolled out between the US and Austria, France, Italy, Spain, and the UK last week. “India and US have decided that the same terms that operate under the October 21 joint statement shall be valid 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. Though, the interim period that will be relevant will be from April 1, 2022 until implementation of Pillar One or March 31, 2024, whichever is prior,” the ministry of finance stated.

The US Treasury stated “This negotiation represents a rational solution that helps ensure that countries can emphasis their collective efforts on the successful implementation of the OECD/G20 Inclusive Framework’s historic agreement on a new multilateral tax regime and permits for the termination of trade measures espoused in response to the Indian equalisation levy.”

Mr. Rohinton Sidhwa, partner at consulting firm Deloitte India stated that it will help ensure that the liability does not surpass the calculated liability under Pillar One with credit on hand in the home country of the company.

Under the global deal Pillar One offers taxing rights to market jurisdictions on part of the outstanding profits earned by a multinational enterprise (MNE) group with an annual global turnover surpassing 20 billion euros (US$ 22.5 billion/Rs. 1.6 trillion) and 10% profitability. Pillar Two requires MNE groups with an annual global turnover exceeding 750 million euros (US$ 842.1 million/Rs. 62.6 billion) to pay at least 15%.

Ms. Gouri Puri, partner at Shardul Amarchand Mangaldas stated that “This also implies India’s commitment to tax certainty as it embraces a more subtle approach in favour of a stable international tax regime. Clearly, India is taking a nuanced and sensible approach to manage its trade, tax and economic interests. Remarkably, 6% equalisation on online ad revenue does not form a part of this deal. While the fine print is anticipated, one can take advice from the deal that the US entered into with the UK, Austria, France, Italy and Spain in October.”