November 29 2021

United States and India Reach Transition Agreement on Digital Services Tax

Source: IBFD Tax Research Platform News

On 24 November 2021, the United States and India reached an agreement on the treatment of India's digital services tax (DST) during the interim period prior to full implementation of Pillar One of the OECD-G20 agreement.

The US Treasury Department issued a related Press Release dated 24 November 2021. The Office of the US Trade Representative (USTR) also issued a related Press Release of the same date.

The US-India agreement applies the same terms of the agreements that the United States reached with Austria, France, Italy, Spain and the United Kingdom on 21 October 2021 and with Turkey on 22 November 2021.

Accordingly, in defined circumstances, the liability from India's equalization levy on e-commerce supply of services that US companies accrue in India during the interim period will be creditable against future taxes accrued under Pillar One. The period during which the credit accrues will, however, be from 1 April 2022 until either the implementation of Pillar One or 31 March 2024 (whichever is earlier).

In return, the United States will terminate the currently suspended additional tariffs on goods of India that had been adopted in response to India's equalization levy.

In January 2021, the USTR issued a report concluding that India's equalization levy is unreasonable or discriminatory and burdens or restricts US commerce. On 2 June 2021, based on the findings, the USTR determined to impose additional tariffs on certain goods of India, while suspending the implementation of the tariffs for 180 days (ending on 29 November 2021).

With this agreement with India, the United States has now reached agreement regarding the treatment of DSTs during the interim period with all seven jurisdictions that the USTR concluded had adopted unreasonable or discriminatory DSTs (i.e. Austria, France, India, Italy, Spain, Turkey and the United Kingdom).