India, US agree on transitional approach on Equalisation Levy 2020
- Recently this year, 136 countries, including India, agreed to enforce a 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. India and United States have agreed on a transitional approach on Equalisation Levy 2020.
- India and United States have agreed that the same terms that apply under the October 21 Joint Statement shall apply between the two countries with respect to India’s charge of two per cent equalisation levy on e-commerce supply of services and the United States’ trade action regarding the Equalisation Levy.
- The US had announced in January this year that India’s equalisation levy was discriminatory and actionable, and in March, proposed 25 per cent retaliatory tariffs on about 40 products including shrimps, wooden furniture, gold, silver and jewellery items and basmati rice.
- The levies could add up to about $55 million which was the approximate amount of the DST payable by US-based companies such as Google, Amazon, Linkedin and Facebook, as per calculations made by the USTR.
- In a major reform of the international tax system, on October 8 this year, 136 countries, including India, have agreed to an overhaul of global tax norms to ensure that multinationals pay taxes wherever they operate and at a minimum 15% rate.
- However, the deal requires countries to remove all digital services tax and other similar unilateral measures and to commit not to introduce such measures in the future.
Two pillars of framework:
- Dealing with transnational and digital companies. This pillar ensures that large multinational enterprises, including digital companies, pay tax where they operate and earn profits.
- Dealing with low-tax jurisdictions to address cross-border profit shifting and treaty shopping. This pillar seeks to put a floor under competition among countries through a global minimum corporate tax rate, currently proposed at 15%.
- If implemented, countries such as the Netherlands and Luxembourg that offer lower tax rates, and so-called tax havens such as Bahamas or British Virgin Islands, could lose their sheen.
Impact/implications on India:
- India will have to roll back the equalisation levy that it imposes on companies such as Google, Amazon and Facebook when the global tax regime is implemented.