Recently India and the United States have agreed on a transitional approach on equalization levy.
The two countries have signed an agreement to transition from an equalization fee (or digital tax).
- The US, Austria, France, Italy, Spain and the United Kingdom have agreed on a transitional approach to existing unilateral measures.
- Equalization duty was introduced in the year 2016 to levy tax on foreign firms (like Amazon, Google etc.) without any permanent establishment in India.
- Later the US had examined such digital taxes adopted by Austria, India, Italy, United Kingdom etc. The US declared that these taxes discriminate against American digital companies.
- In October 2021, 136 countries, including India, agreed to implement a global minimum corporate tax rate of 15%. At the same time, it was agreed to introduce a uniform system of taxing the profits of large companies in the markets where these profits accrue.
- The agreement requires countries to remove all digital services tax and other similar unilateral measures.
The proposed solution to the global tax agreement consists of two components:
- Pillar one, which deals with the reallocation of an additional share of profits to the market jurisdiction and column two, covers the minimum tax and is subject to tax rules.
- As per the India-USA agreement, India will continue to apply equalization duty till March 31, 2024 or till the entry into force of Pillar 1, whichever is earlier.
Source – The Hindu