India, US agree to transitional digital tax regime • The Register


India agreed to reduce the 2% equalization tax it imposes on foreign e-commerce companies, and the United States has withdrawn the sanctions it imposed in protest against the tax.

The tax was introduced in 2016 to allow India to collect more taxes. The country’s government introduced it because the big e-commerce players had used legal but cynical tax minimization schemes that led them to make purchases made in India with offshore entities – even though the goods were sold in India, to residents of India.

The measure was aimed squarely at US-based companies such as, but also Indian-based companies such as FlipKart (which is owned by US company Walmart).

The United States opposed the Indian tax and similar taxes imposed by Vietnam, the Philippines and Indonesia, arguing they discriminate against its businesses.

In July 2021, the Biden administration retaliated by imposing tariffs on countries that apply taxes on digital services, but immediately suspended the sanction.

The timing of this American action was not random. The October meetings of the G20 and the OECD saw broad international agreement reached on new global tax rules that will see multinational corporations pay at least 15 percent of their income as tax in every country they do. Business. In theory, this arrangement should mean that Amazon, Apple, Google, and Microsoft have to pay taxes wherever they operate, instead of being able to look for low-tax jurisdictions.

Once these agreements were signed, the United States abandoned its tariff threat.

But India has not abandoned its levy, as the new global tax deal has yet to be implemented.

While India and the United States wait for these formalities to be completed, they will count the equalization levy as a credit against future taxes, once the new global agreements come into effect. These credits will accumulate from April 1, 2022 to March 31. 2024, or whenever tax transactions are sorted.

The US Treasury Department hailed the agreement with India as “a pragmatic solution that helps ensure that countries can focus their collective efforts on the successful implementation of the landmark OECD / G20 inclusive framework agreement on a new multilateral tax regime ”. America has also waived its suspended tariffs on India.

The Indian government took note of the agreement but expressed no opinion on its merits.

Austria, France, Italy, Spain, the United Kingdom and Turkey have already concluded similar agreements with the United States.

The tax evasion tech giants have mostly remained silent on the new provisions – perhaps because most announced their quarterly results just days or weeks after the new rules were adopted. The register expects investors to request information soon on the impact of the new tax regime on bottom lines. ®


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