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. This framework aims to modernize the international tax framework and addresses issues related to tax base erosion and profit shifting (BEPS) by multinational enterprises (MNEs).
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 OECD/G20 two-pillar solution includes provisions for a global minimum corporate tax rate to prevent BEPS and introduces Global Anti-Base Erosion (GloBE) rules to ensure that multinational enterprises pay a minimum level of tax regardless of their global operations.
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.
This extension underscores the ongoing cooperation between India and the United States in addressing the tax challenges posed by the digital economy, aiming to create a fair and transparent international tax environment.
