Tax consultants really feel that the India-US settlement, which additionally prevents Washington from taking retaliatory commerce motion in opposition to India citing the equalisation levy, will put to relaxation related commerce disputes between the 2 international locations. (Consultant picture)

A bilateral settlement between India and the US reached on Wednesday will enable New Delhi to proceed to levy the two{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} equalisation levy (so-called Google tax) on digital providers supplied in India by US-based MNEs with out residence right here for an interim interval past this monetary yr. The interval can be be co-terminus with when the OECD tax deal takes impact or the tip of 2023-24 fiscal, whichever is earlier.

The leeway will give a short lived liquidity enhance to India’s coffers, though it could should fork out the surplus tax quantities collected – over what the OECD settlement’s Pillar-1 entails — to the big US MNEs as soon as the multilateral settlement is in drive. The distinction in tax liabilities on the stated MNEs below the 2 regimes – equalisation levy and Pillar one – can be computed on the idea of the primary yr of Pillar-1 implementation.

Tax consultants really feel that the India-US settlement, which additionally prevents Washington from taking retaliatory commerce motion in opposition to India citing the equalisation levy, will put to relaxation related commerce disputes between the 2 international locations.

The OECD framework settlement was reached by 136 international locations together with India and US on October 8 to deal with the tax challenges arising from the digitalisation of economies below a two-pillar resolution. Pillar-1 will apply to MNEs with profitability above 10{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} and world turnover above 20 billion euros. The revenue to be reallocated to markets can be calculated as 25{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} of the revenue earlier than tax (Quantity A) in extra of 10{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} of income. Pillar Two introduces a worldwide minimal company tax fee set at 15{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811}.

The 2-pillar resolution was accredited by the G20 finance ministers assembly in Washington on October 13 after which by the G20 leaders on October 30.

India launched equalisation levy of 6{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} on-line commercial providers supplied by non-residents in 2016 and later widened its ambit in 2020 by introducing 2{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} levy on non-resident e-commerce companies. The settlement with US covers solely 2{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} tax. The ultimate phrases of the Settlement shall be finalised by February 1, 2022, the finance ministry stated.

“Apparently, 6{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} EL on on-line advert income doesn’t kind part of this deal. The reduction is more likely to apply solely to these US MNEs which might be lined below Quantity A. No reduction could also be supplied to US MNEs which might be topic to 2{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} EL however don’t fall throughout the scope of Quantity A of Pillar 1 throughout an outlined interval. That is notable contemplating that India’s income threshold for two{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} EL is as little as Rs 2 crore in a tax yr, whereas Quantity A solely applies to MNEs with a worldwide turnover of 20 billion Euros,” stated Gouri Puri, accomplice, Shardul Amarchand Mangaldas & Co.

The settlement with India is just like US’ October 21 pact with Austria, France, Italy, Spain and the UK on a transitional strategy to present Unilateral Measures whereas implementing Pillar 1 of the OECD world taxation framework. “This compromise represents a realistic resolution that helps make sure that international locations can focus their collective efforts on the profitable implementation of the OECD/G20 Inclusive Framework’s historic settlement on a brand new multilateral tax regime and permits for the termination of commerce measures adopted in response to the Indian equalisation levy,” US treasury division stated in a press release on Wednesday.

India collected Rs 2,200 crore as equalisation levy in FY21 and is projected generate income of over Rs 3,000 crore in FY22. “Primarily the phrases name for a established order on any retaliatory measures pending the implementation of the Pillar 1 resolution,” stated Rohinton Sidhwa, accomplice, Deloitte India.

https://www.financialexpress.com/financial system/india-us-deal-google-tax-leeway-for-india-till-oecd-tax-pact-takes-effect/2376312/

India-US deal: Google tax leeway for India until OECD tax pact takes impact