India, US reach agreement on Google Tax

India, US reach agreement on Google Tax

The government has said that both India and the United States have reached a settlement on the issue of a 2 per cent equalization levy, also known as the Google Tax, imposed by the country on e-commerce operators. The agreement was reached by the United States, France, Italy and Spain on October 21 by agreeing to the framework under the Unilateral Measures Compromise. The deal will ensure that countries will be able to withdraw measures like the equalisation levy to tax these digital companies.

Both India and the US have joined the OECD-G 20 Inclusive Framework in reaching an agreement on the equalisation levy.

A statement by the Finance Ministry says that on October 21 the United Kingdom, France, Italy, Spain and the United States reached an agreement on a transitional approach to existing Unilateral measures while implementing Pillar 1. The joint statement issued by those six countries on October 21 will show that countries will be setting a minimum corporate tax of 15 per cent.

Both India and the United States have agreed that the same terms that apply under the Joint Statement on October 21 will apply between the United States and India with respect to India's charge of 2 per cent equalization levy on e-commerce supply of services and the United States trade action regarding the said equalization levy.

It will be applicable from 1st April 2022 until the implementation of Pillar One or 31st March 2024, whichever is earlier.

India and the United States will remain in close contact to make sure there is a common understanding of the commitments and resolve any differences of views on this matter through constructive dialogue.

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

The proposed solution under base erosion and profit shifting under the OECD BEPS consists of two components. Pillar 1 deals with the reallocation of an additional share of profit to the market jurisdictions where the users are. The second pillar relates to a minimum tax of 15 per cent. Estimates suggest that $150 billion of additional tax revenues should be mobilised under the second pillar. BEPS refers to the exploitation of gaps and mismatches in tax rules by multinational companies to shift their profits to low-tax regimes.