Monday, 25 January, 2021


USTR halts tariff action in France DST probe

Is US trade body's probe undermining India's right to tax digital transactions The investigation by the USTR found that the India's digital services tax targets digital services but not similar services provided non-digitally
Conrad Doyle | 09 January, 2021, 10:57

USTR said suspending the action against France would allow Washington to pursue a coordinated response in 10 investigations into similar taxes in India, Italy, the United Kingdom and other countries.

The USTR later also said it had found that digital services taxes adopted by India, Italy and Turkey also discriminated against US companies and were inconsistent with worldwide tax principles, but held off on announcing any specific tariff actions.

Despite the strong findings on three nations' digital services taxes, USTR said it is not taking any specific actions "at this time" but will "continue to evaluate all available options". The USTR probe argues that the levy taxes companies' revenue rather than income, so it's inconsistent with worldwide tax principles.

The report claims that an Indian government official accepted that levy was meant to be discriminatory.

Highlighting the supposed discrimination, the report said of the companies that were subjected to India's equalisation levy, 72 per cent were American.

Besides, the DST taxes companies' revenue rather than their income. "India's [Equalisation Levy] is discriminatory on its face".

The USTR report said commentators estimated that compliance costs for India's DST would be "in the millions" for each company, and "the administrative burden associated with compliance is significant, even if firms can pay the tax".

In June 2020, the United States initiated Section 301 investigations into DSTs considered by 10 USA trading partners, including the European Union, Brazil and India.

Introduced in 2016, the Equalisation Levy, initially was applicable to payments for digital advertisement services received by non-resident companies without a permanent establishment here, if these exceeded ₹1 lakh a year.

USTR started investigation in June previous year against Equalisation Levy (EL), on the ground of Section 301 of the U.S. Trade Act of 1974. It's a sort of digital tax on non-resident e-tailers at 2% on the revenue they generate in India from eCommerce supply or services.

Commerce ministry sources said the objective of the "Equalisation Levy" is to ensure greater competitiveness, fairness, reasonableness and exercise the ability of the governments to tax businesses that have a close nexus with the Indian market through their digital operations. The USTR has also slammed Turkey and Italy for the "discriminatory" DST in its final report, while investigation is still on for other countries.

The U.S. government argues that the French tax unfairly targets American companies.

Earlier, in its reply to the office of the USTR office, India had opposed the U.S. probe, firmly asserting that its equalisation levy was "non-discriminatory", has only prospective application and didn't specifically target American companies.

India submitted its comments to the USTR on July 15, 2020 and participated in bilateral consultations in November.

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