In a major reform of the international tax system, on October 8 this year, India and United States joined 134 other members of the OECD/G20 Inclusive Framework in reaching agreement on the Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy.
Following that on October 21, the United States, Austria, France, Italy, Spain and the United Kingdom reached an agreement on a transitional approach to existing unilateral measures while implementing Pillar one.
“India and the United States have agreed that the same terms …. shall apply between the United States and India with respect to India’s charge of 2 percent equalisation levy on e-commerce supply of services and the United States’ 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 in a statement.
India and the US will remain in close contact to ensure that there is a common understanding of the respective commitments and endeavour to resolve any further differences of views on this matter through constructive dialogue, it added.
The final terms of the agreement shall be finalised by February 1, 2022, the ministry added.
Nangia Andersen India Chairman Rakesh Nangia said to the extent that taxes that accrue to India with respect to Equalisation Levy starting April 1, 2022, till March 31, 2024, or when Pillar One takes effect, whichever is earlier, exceed an amount equivalent to the tax due under Pillar One in the first full year of implementation (prorated to achieve proportionality with the length of the interim period), such excess will be creditable against the portion of the corporate income tax liability associated with Amount A as computed under Pillar One in these countries, respectively.
This is a commendable move of the Indian government. This agreement shall ensure that the corporates will get to pay fair taxes starting 2022, irrespective of the actual implementation of Pillar One, Nangia added, reported news agency PTI.
AKM Global Tax Partner Amit Maheshwari said the India-US agreement on a transitional approach is beneficial to India, as it can carry on with the present 2 per cent levy with certainty until Pillar One takes into effect, along with a commitment from the US side to terminate the proposed trade actions and not to impose further actions as well.
“Further, this would help prevent the tax loss arising due to online transactions as India has to roll back EL 2.0 any way after Pillar 1 and it is to be kept in mind that Pillar 1 only applies to companies with a global turnover above 20 billion euros, which is precisely top 100 companies,” Maheshwari said.With PTI inputs