India-USA Agree On The Future Of 2% Equalization Levy (2020)

• India not required to withdraw the 2% equalisation levy before implementation of Pillar One
• USTR to terminate its proposed trade action under Section 301 for imposition of tariffs on goods imported from India
• MNEs subject to Pillar One to get a credit for the 2% equalisation levy paid during a specified period prior to implementation of Pillar One, which could be set off against their Pillar One liability.
• No credit available for the 6% equalisation levy.

BACKGROUND

The tax challenges of digitalisation of economy have been the cornerstone of debate at the Organisation for Economic Co-operation and Development ("OECD") level since 2015. One of the interim measures discussed to tackle direct tax challenges arising from digital economy by the OECD Action Plan 1 Report ("AP 1 Report") was imposition of equalisation levy ("EL") on certain specified services by countries in their domestic laws or in its bilateral tax treaties.