New Delhi/Washington DC June 29:

In a significant development, India and the United States have agreed to extend the Transitional Approach on Equalisation Levy 2020 until June 30, 2024. This decision comes in the wake of recent international agreements and ongoing negotiations aimed at addressing tax challenges arising from digitalization.

The Transitional Approach, originally agreed upon on November 24, 2021, aligns with the terms set forth in the October 21 Joint Statement, which involves a political compromise among Austria, France, Italy, Spain, the United Kingdom, and the United States. This agreement pertains specifically to India’s imposition of a 2% equalisation levy on e-commerce services and the United States’ corresponding trade actions in response.

The extension follows the decision made by the United States along with Austria, France, Italy, Spain, and the United Kingdom on February 15, 2024, to prolong the validity of the October 21 Joint Statement until the end of June 2024. This move underscores a coordinated effort among major economies to manage the transitional phase while awaiting the implementation of Pillar One under the OECD/G20 Inclusive Framework.

The OECD/G20 Inclusive Framework, comprising 137 member jurisdictions including India and the United States, has been actively working towards finalizing a multilateral convention under Pillar One by March 2024. The aim is to facilitate a global consensus on taxing rights related to digital services, thereby mitigating unilateral measures such as India’s equalisation levy.

In their joint statement, both India and the United States reaffirmed their commitment to constructive dialogue and mutual understanding in addressing tax challenges posed by digital economies. They expressed readiness to resolve outstanding issues through ongoing engagement and cooperation.

As per the extended agreement, both countries will maintain close communication to ensure alignment with international developments and seek to resolve any emerging issues effectively. This extension provides continuity and stability in the tax treatment of digital services between India and the United States until the end of June 2024, pending further global consensus on Pillar One reforms.