US Agrees On Digital Services Tax Deal With India, To End Trade Retaliation

The agreement between the US Treasury and the finance ministry is similar to the terms agreed to with Austria, Britain, France, Italy, Spain and Turkey, but with a slightly later implementation date,

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New Delhi: In a sign of relief, the US Trade Representative's (USTR) office will terminate its trade retaliation case against India after Washington and New Delhi agreed on a global tax deal transition arrangement that will withdraw India's digital services tax.

According to USTR, the agreement between the US Treasury and the finance ministry is similar to the terms agreed to with Austria, Britain, France, Italy, Spain and Turkey, but with a slightly later implementation date, as per Reuters report.

What’s the global tax deal transition arrangement?

The pact is the result of the October agreement by 136 countries in principle to withdraw their digital services taxes as part of a sweeping global tax deal agreed on October 8 to adopt a 15 per cent global minimum corporate tax and grant some taxing rights on large profitable companies to market countries.

Under the pact, countries have agreed not to impose new digital services taxes before the OECD tax deal is implemented by the end of 2023, but arrangements need to be made with seven countries that had existing digital taxes largely targeting US technology giants including Google, Facebook, and Amazon.com.

How it is going to impact India?

Under this deal between Washington and New Delhi, all seven countries come into a transition arrangement.  The development comes after the visit of US Trade Representative Katherine Tai to India which focused on increasing trade cooperation on agricultural and other goods.

Under the agreed withdrawal terms, the countries can continue to collect digital services taxes until the new regime is put in place. But for Turkey and the European countries, any taxes collected after January 2022 that exceed what companies would have to pay under the new rules would be credited against the firms' future tax liabilities in those countries.

In case of India, the starting date for those credits was pushed back to April 1, 2022, with a three-month extension beyond the end of 2023 if the OECD tax deal is not implemented by that time.