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The Indian Finance Ministry issued a November 24 press release announcing that it had agreed with the United States on a transitional approach to the 2% Indian Equalisation levy (the ‘Indian EL’ or digital tax) on e-commerce supply or services.  The US Treasury also announced this agreement through a press release.

This agreement will be in effect during the interim period until Pillar One, relating to new nexus and profit allocation rules, comes into effect through a multilateral convention (MLC) in 2023. 

Action item: Foreign multinationals should assess the applicability of the Indian EL vis-a-vis Indian withholding tax (WHT) on their income, as the Indian EL applies only where the income is not subjected to WHT (as royalty or fees for technical services).