India & the US reach settlement on 2% equalisation levy

India & the US reach settlement on 2% equalisation levy

As per the latest development, India and the United States have reached a settlement on 2 per cent equalisation levy or the ‘Google Tax’, which is imposed by India on e-commerce operators. The agreement is similar to the Unilateral Measures Compromise reached among the UK, Austria, France, Italy and Spain with the US last month.

As per the settlement, India shall continue to impose the google tax till the implementation of Pillar One or till 31st March 2024. The US, on the other hand, will discontinue the trade tariff actions it had announced in reply to the levy.

The Finance Ministry has released a statement in which it has said that India and the United States will remain in close contact to ensure there is a common understanding of the respective commitments and any further differences of views will be resolved through constructive dialogue.

With this agreement, India and the United States joined 134 members in the framework of the Organization for Economic Co-operation and Development (OECD) to reach an agreement on parity tax.

The solution proposed under the OECD BEPS (Base Erosion and Profit Shifting) framework has two pillars. Pillar 1 deals with reallocating an additional share of the profit to the market areas where the users are. Pillar 2 concerns a global minimum tax of 15 per cent. It is estimated that $150 billion in additional tax revenue should be mobilized under the second pillar.

The final terms of the agreement will be finalised by 1st February 2022.