Context: Signing a pact for the transition from equalisation levy, India and the US recently agreed for a transitional approach on equalisation levy or digital tax on e-commerce supplies beginning April 2022.

Background

• The US had earlier conducted a year-long investigation beginning in June 2020 into digital services taxes, stating that they are against tech companies like Apple, Amazon, Google and Facebook. 
• It had said that the digital services taxes adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom discriminated against US digital companies and were inconsistent with principles of international taxation and burdened US companies. 
• Tax experts said it will put to rest the trade conflict between India-US because of digital service taxes and will certainly facilitate ongoing trade negotiations between the countries.
• Recently 136 countries, including India, agreed to enforce a Global minimum corporate tax rate of 15 per cent, as well as an equitable system of taxing profits of big companies in markets where they are earned. 
• The deal requires countries to remove all digital services tax and other similar unilateral measures.
• Part of agreement
  • India is among the 136 countries to have agreed to enforce a minimum corporate tax rate. 
  • The deal requires countries to remove all digital services tax and other similar unilateral measures.
  • The proposed two-pillar solution of the global tax deal consists of two components — 
    • Pillar One, which is about reallocation of an additional share of profit to the market jurisdictions and 
    • Pillar Two, consisting of minimum tax and subject to tax rules.
• Recently, the United States, Austria, France, Italy, Spain and the United Kingdom agreed on a transitional approach to existing unilateral measures while implementing Pillar one.
• The final terms of the agreement between India and the US shall be finalised by February 1, 2022.

About the recent pact

• India and the United States have agreed to the same terms.
• It shall apply between the United States and India with respect to India’s charge of 2 per cent 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. 
• Both nation 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.

Objective

• This compromise represents a pragmatic solution that helps ensure that countries can focus their collective efforts on the successful implementation of the OECD/G20 Inclusive Framework’s historic agreement on a new multilateral tax regime and allows for the termination of trade measures adopted in response to the Indian equalization levy.

Related Facts About Equalization levy: It was introduced in India with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India.  It is aimed at taxing (B2B) business to business transactions. It is levied at 6% on payments made to offshore platforms hosting online advertisements, it will be taxed only at 2% on e-commerce transactions Equalisation Levy 2.0: The Equalisation Levy introduced by the Finance Act 2016, was charged at 6% on certain online advertising and related services.  The Finance Act 2020 amended the Finance Act 2016, introducing a new Equalisation Levy at 2% on the consideration received/receivable by an e-commerce operator from the following transactions (e-commerce supply or services): Online sale of goods owned by the e-commerce operator; or Online provision of services provided by the e-commerce; or Online sale of goods or provision of services or both, facilitated by the e-commerce operator; or Any combination of the above-mentioned activities The levy is applicable on consideration received by the e-commerce operator on the above transactions from a: Person resident in India Non-resident, where the: Sale of advertising, which targets a customer who is resident in India, or a customer who accesses the advertising though an IP address located in India; and Sale of data, collected from a person who is resident in India or from a person who uses an IP address located in India Person who buys goods or services, or both, uses an IP address located in India. Thus, the levy captures online sales of any goods or provision of any services by or through a non-resident e-commerce operator. Read More about the India-US trade Forum

Source: Click Here

 

Some Important Links:

NCERT Course 2022-2023

GS Foundation 1year, 2 years and 3 Years Course

Anthropology Foundation (Optional Course) For UPSC CSE 2021-22

Geography Foundation (Optional Course) For UPSC CSE 2021-22

Join our Telegram Channel:   https://t.me/JVIAS10

For more queries call us: +91- 8882932364

---