India-US 2% e-commerce tax deal expires

The interim framework agreement on imposing a 2 percent tax on inter-country digital transactions, adopted by India and the United States on November 24, 2021, expires on June 30, 2024, requiring a new tax agreement.

India and the United States have agreed to maintain the 2 per cent equalisation cess levied by India on cross-border supply of e-commerce services and the trade actions of the United States relating to the said equalisation cess.

The agreement signed on 24 November 2022 has the same terms as those applicable to the OECD/G20 Framework Agreement on Addressing the Tax Challenges Arising from the Digitalisation of Trade.

A top-up tax is a direct tax levied on internet transactions with non-residents or on remuneration received by a non-resident for certain services.

India introduced the tax through the Finance Act, 2016. The levy is levied on several cross-border e-commerce transactions irrespective of the physical presence of any country. However, the United States has so far refrained from taking any retaliatory action. The status quo on the trade countervailing measure may continue until Pillar 1 of the OECD Global Tax Reform Initiative is implemented.

India, like other signatories, will now have to count the collected equalisation levy against its future Pillar I obligations.