India Extends Digital Tax Agreement with US as Global Tax Negotiations Continue

India and the United States have agreed to extend the 2% equalisation levy, commonly known as the digital tax, on e-commerce supplies until June 30. The agreement follows their participation with 134 other members of the OECD/G20 Inclusive Framework in reaching a consensus on the Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy on October 8, 2021. On November 24, 2021, India and the United States agreed that the terms outlined in the October 21 Joint Statement would apply to India’s 2% equalisation levy on e-commerce services until the implementation of Pillar One or March 31, 2024, whichever is earlier. Following a decision on February 15, 2024, by the United States and other countries (Austria, France, Italy, Spain, and the United Kingdom) to extend the political compromise set forth in the October 21 Joint Statement until June 30, 2024, India and the United States have mutually agreed to extend the validity of their agreement until the same date. The Finance Ministry of India emphasized that both countries will maintain close communication to ensure a common understanding of their commitments and resolve any issues through constructive dialogue.

The global corporate tax deal, an agreement being formulated under a multilateral forum comprising 145 countries, is at a critical juncture. India and China are not engaging with the US on the deal, raising concerns about the inclusivity and effectiveness of the agreement. Developing countries, including India, are seeking to address the issue of digital businesses operating without taxable presence, which has led to a loss of tax revenue. India has been asserting greater taxing rights in the past two decades and has levied a digital services tax since 2016. However, if Pillar One of the global tax deal goes through, India would have to forego its share of digital taxes. India is asking to revisit century-old rules and find a middle ground on issues to ensure a fair and balanced outcome for all parties involved.

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 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 has been extended as no consensus has been reached on the Pillar 1 package. The Pillar 1 tax regime is part of the OECD BEPS framework and aims to levy a tax on the digital economy. The Pillar 1 negotiations are 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. The agreement was originally signed in 2021 and intended to give India the right to impose the equalisation levy on American digital service providers until Pillar 1 is implemented. The validity of the agreement has been extended till June 30, 2024.

The United States and India have extended a standstill agreement on U.S. retaliation over India's digital-services tax until Sunday, aligning it with a fast-approaching deadline for a global deal to reallocate taxing rights on the world's biggest and most profitable companies. The Pillar 1 deal is in danger of collapse as the U.S., India, and China have failed to agree on key elements of the deal related to calculation of transfer pricing to help determine local tax liabilities. The extension of the U.S.-India agreement also aligns it with the expiration of similar deals with six other countries that had enacted digital-services taxes: Austria, Britain, France, Italy, Spain, and Turkey.

In a recent development, India and the US have decided to extend a 2% equalisation levy or digital tax on e-commerce supplies until June 30. This decision is part of a major reform of the international tax system, with India and the US joining 134 other members of the OECD/G20 Inclusive Framework. The agreement was reached on October 8, 2021, and the terms were agreed upon on November 24, 2021. The validity of the agreement is from April 1, 2022, till the implementation of Pillar 1 or March 31, 2024, whichever is earlier. On February 15, 2024, the US and Austria, France, Italy, Spain, and the UK decided to extend the political compromise until June 30, 2024. India and the US will remain in close contact to ensure a common understanding and resolve any issues through constructive dialogue.

India and the United States have agreed to extend the 2% digital tax on e-commerce supplies until June 30. The decision was made to allow more time for negotiations on a global tax deal. The digital tax was initially introduced in April 2020 and was set to expire on May 31, 2021. The extension will provide additional time for discussions on a comprehensive agreement on digital taxation. The agreement between India and the US aims to ensure a level playing field for domestic and foreign e-commerce companies. The extension of the digital tax will impact e-commerce companies operating in India and those with a significant presence in the country. The move comes as countries around the world are grappling with the issue of taxing digital services and ensuring that multinational tech giants pay their fair share of taxes.