India-US agree to extend 2 percent digital tax on e-commerce supplies till June 30

On October 8, 2021, the two countries joined 134 other members of the OECD/G20 Inclusive Framework (including Austria, France, Italy, Spain, and the United Kingdom) in reaching agreement on the OECD/G20 Statement on two-pillar solutions to address tax challenges posed by the digitalisation of the economy.

On November 24, 2021, India and the United States agreed that the same conditions that apply under the October 21 Joint Statement would apply with respect to the imposition of a 2% equalization duty on supplies of e-commerce services between India and the United States and the trade action of the United States with respect to the said equalization duty.

The validity of this agreement was from 1 April 2022 till the implementation of Pillar One or till 31 March 2024, whichever is earlier. This was stated in public statements made by both the parties on 24 November.

On February 15, 2024, the United States and Austria, France, Italy, Spain, and the United Kingdom decided to extend the political agreement set out in the October 21 joint statement until June 30, 2024.

“In view of the above developments, India and the United States have decided to extend the validity of the agreement as reflected in the November 24 Statements till June 30, 2024. All other terms of the Transitional Approach will remain the same,” the Finance Ministry release said.

The OECD/G20 two-pillar solution addresses tax challenges arising from the digitalisation of the economy and aims to modernise the international tax framework.

This pillar introduces a global minimum corporate tax rate to prevent tax base erosion and profit shifting (BEPS). The minimum tax rate ensures that MNEs pay at least a minimum level of tax, regardless of where they are headquartered or where they operate.

It also mandates the implementation of Global Base Erosion Prevention (GLOBE) rules for taxing foreign income, to provide a level playing field and eliminate the need for countries to offer very low tax rates to compete for inward investment.

The Finance Ministry further said in the statement that both countries will remain in close contact to ensure a shared understanding of the respective commitments and will try to resolve all issues on the matter through constructive dialogue.