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An Agreeable Week for the US

Kitty Miv, Editor
01 December, 2021

In this week's column, we will be looking at international agreements, starting with the joint announcement by Turkey and the United States that the former has agreed a timeline for the withdrawal of its digital services tax.

The newly announced bilateral agreement follows the international agreement on October 8, 2021, among 136 territories party to the BEPS Inclusive Framework on a new, two-pillar international tax framework for large multinational companies, including new rules to share the profits of digital giants with market jurisdictions ("pillar one") and a minimum 15 percent corporate tax rate ("pillar two").

The agreement between Turkey and the United States mirrors an earlier "political compromise" struck between the US and five European states – Austria, France, Italy, Spain, and the United Kingdom. Under the agreements, the countries will replace their digital services taxes with the OECD's new framework when it is introduced – expected from December 31, 2023.

Further, they agreed that the tax burden of these regimes, from January 1, 2022, should not exceed that which would be enforced were the pillar one measures effective immediately. In addition, the countries have agreed to provide a credit against corporate tax liability for any digital services tax paid in excess of what would be due under pillar one, for a period between January 1, 2022, and ending on the earlier of the date the pillar one multilateral convention comes into force or December 31, 2023.

In return, the United States has agreed to terminate proposed trade actions and commit not to imposing further trade actions against the countries.

The expansion of these terms also to Turkey was announced by the US Treasury on November 22.

Sticking with the United States, it was also reported this week that India and the United States have reached a compromise to resolve a dispute regarding India's two percent Equalisation Levy.

In a bid to address the tax challenges posed by the digital economy, India included provisions in the 2016 Finance Act for a new equalisation levy at a rate of six percent of the gross payment made for "specified digital services" and facilities.

When introduced, the equalisation levy only applied to certain business-to-business transactions, but under reforms introduced through the Finance Act, 2020, the equalisation levy's scope was broadened to a wide range of electronically provided goods and services to Indian consumers, at a rate of two percent, and imposed on non-resident e-commerce operators.

US authorities explained that the agreement with India is consistent with the agreements with reached with Austria, France, Italy, Spain, the United Kingdom, and newly Turkey in relation to their respective digital taxes.

The Indian Finance Ministry revealed that the final terms of the agreement will be finalized by February 1, 2022.

Until next week!


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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