India and USA Extend Digital Tax Agreement Until June 2024

India and the United States have agreed to extend the 2% equalisation levy, also known as the digital tax, on e-commerce supplies until June 30, 2024. This decision follows the agreement made on October 8, 2021, where both countries, along with 134 other members of the OECD/G20 Inclusive Framework, aimed to address the tax challenges arising from the digitalization of the economy.

On November 24, 2021, India and the United States agreed that the terms under the October 21 Joint Statement would apply to India’s 2% equalisation levy on e-commerce services and the United States’ trade actions regarding this levy. The agreement was initially valid from April 1, 2022, until the implementation of Pillar One or March 31, 2024, whichever came first.

On February 15, 2024, the United States, along with Austria, France, Italy, Spain, and the United Kingdom, decided to extend the political compromise set forth in the October 21 Joint Statement until June 30, 2024. Following this, India and the United States decided to extend their agreement until June 30, 2024, with all other terms of the transitional approach remaining the same.

The OECD/G20 two-pillar solution aims to modernize the international tax framework by introducing a global minimum corporate tax rate to prevent tax base erosion and profit shifting (BEPS). This ensures that multinational enterprises pay at least a minimum level of tax, regardless of their headquarters or operational locations. It also mandates the implementation of Global Anti-Base Erosion (GloBE) rules to ensure foreign income is taxed, restoring a level playing field and eliminating the need for countries to offer very low tax rates to attract investment.

The Finance Ministry stated that both countries will remain in close contact to ensure a common understanding of their commitments and will work to resolve any issues through constructive dialogue.