NEW DELHI: India and the United States have decided to extend the relief enjoyed by the US multinational companies (MNCs) on equalisation levy (digital taxes) paid in India till June 30, 2024.
As per the agreement reached by India and the US, India must refund access digital taxes collected from US MNCs from April 1, 2022, until June 30, 2024.
According to the original agreement between the two countries, the validity of this agreement was from April 1, 2022, until implementation of Pillar 1 of the new global tax regime, or 31 Mar 2024, whichever is earlier.
India levies 2% tax on revenue generated from a broad range of digital services offered in India by non-resident companies. Calling it discriminatory, the US had proposed retaliatory tariffs of up to 25% on nearly 40 Indian products in June 2021.
However following international tax negotiations, it suspended these levies.
On October 21, 2021, the US and Austria, France, Italy, Spain, and the United Kingdom reached a compromise on the transitional approach to the unilateral measures in force till Pillar 1 is implemented. Later in November 2021, India also agreed to the terms of the US on digital tax.
The Indian government had agreed to refund the excess amount of tax that it collects through Equalisation Levy starting April 1, 2022, till 31 March 2024, (or when Pillar 1 of the new global tax regime takes effect, whichever is earlier), in comparison to the tax collected under Pillar 1 of the new global tax law in the first full year of its implementation. Pillar 1 gives a country taxing rights on profits earned by multinational corporations within its shores.
The timing for the introduction of Pillar One is still unknown and depends on its acceptance by a large number of countries.