India-USA To Adopt A Transitional Approach On Equalisation Levy

Marking a significant step in international tax negotiations, India has issued a press release on 24 November 2021 (Press Release) confirming that India and USA have agreed on a transitional approach on India's 2% equalization levy on e-commerce supply or services and USA's trade action against India as a consequence of the said levy. 

Background

India's equalisation levy

In 2020, as part of the measures to address the tax challenges posed by the increased digitalization of the economy, India had introduced 'equalization levy' of 2% on certain e-commerce transactions carried out by non-residents (EL).

USA's trade action

On 6 January 2021, the Office of the US Trade Representative (USTR) had issued reports and findings from the Section 301 of the Trade Act, 1974¹ investigations of the levy adopted by India. According to the USTR release, the levy on e-commerce transactions introduced by India was said to discriminate against US digital companies (Apple,