India and the US have reached a compromise on the 2 per cent equalisation levy or digital tax on e-commerce supply of services charged by the country and the US’ proposed retaliatory action against it.

“The two countries agree on the terms of Unilateral Measures Compromise on Oct 21, 2021 agreed upon by the US with the UK, Austria, France, Italy and Spain,” according to an official release issued by the Finance Ministry on Wednesday.

New Delhi has bought itself time till April 1 2022 for start of implementation period for the interim arrangement. “Between India and the US, the interim period would commence from April 1, 2022 till implementation of Pillar One or March 31, 2024, whichever is earlier,” the release said.

The US had announced in January this year that India’s equalisation levy was discriminatory and actionable, and in March, proposed 25 per cent retaliatory tariffs on about 40 products including shrimps, wooden furniture, gold, silver and jewellery items and basmati rice. The levies could add up to about $55 million which was the approximate amount of the DST payable by US-based companies such as Google, Amazon, Linkedin and Facebook, as per calculations made by the USTR.

Retaliation off the cards

However, in June, the US suspended retaliatory tariff imposition on six countries, including India, for a period up to 180 days to provide time for negotiations at the OECD and G20 on international taxation.

With the two countries now reaching a compromise on the matter, the US is now expected to give up its intention to retaliate.

“On October 8, 2021, India and US joined 134 other members of the OECD/G20 Inclusive Framework (including Austria, France, Italy, Spain, and the United Kingdom) in reaching agreement on the statement on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy,” the release pointed out. On October 21, 2021, the US and Austria, France, Italy, Spain, and the United Kingdom reached an agreement on a transitional approach to existing Unilateral Measures while implementing Pillar 1.

“The two countries decide to remain in close contact to ensure that there is a common understanding of the respective commitments and endeavour to resolve any further differences of views on this matter through constructive dialogue; The final terms of the Agreement shall be finalised by Feb 1, 2022,” the release said.

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