Investigation into digital services tax
The United States government on 2 June 2021 announced further suspension of punitive tariffs for six months on India, Austria, Italy, Spain, Turkey, and the United Kingdom while it continues to resolve the digital services taxes investigation amid the ongoing multilateral negotiations at the OECD and the G20.
The United States is focused on finding a multilateral solution to a range of key issues related to international taxation, including our concerns with digital services taxes. The United States remains committed to reaching a consensus on international tax issues through the OECD and G20 processes. Today’s actions provide time for those negotiations to continue to make progress while maintaining the option of imposing tariffs under Section 301 if warranted in the future, US Trade Representative Katherine Tai said in a statement.
The US has conducted a year-long investigation into digital services taxes imposed by countries, stating that they are against tech companies like Apple, Amazon, Google and Facebook. The investigation began in June 2020 and in January 2021, following investigations the USTR determined that the digital services taxes adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom discriminated against US digital companies and were inconsistent with principles of international taxation and burdened US companies.
The US on 2 June 2021 announced 25 per cent tariffs on over $2 billion worth of imports from these six countries but then immediately suspended the duties to allow time for international tax negotiations.
In the case of India, the USTR’s proposed course of action includes additional tariffs of up to 25 per cent ad valorem on an aggregate level of trade that would collect duties on goods of India in the range of the amount of DST that India is expected to collect from US companies. Around 26 categories of goods are in the preliminary list of products that would be subject to the additional tariffs.
This includes shrimps, basmati rice, cigarette paper, cultured pearls, semi precious stones, silver powder and silver articles of jewelry, gold mixed link necklaces and neck chains and certain furniture of bentwood.
What are the digital services taxes in India?
The NDA government had moved an amendment in the Finance Bill 2020-21 imposing a 2 per cent digital service tax on trade and services by non-resident e-commerce operators with a turnover of over Rs 2 crore, effectively expanding the scope of equalisation levy that, till last year, only applied to digital advertising services. The new levy that became applicable from April last year has expanded the ambit of the equalisation levy for non-resident e-commerce operators involved in supply of services, including online sale of goods and provision of services.
E-commerce operators are obligated to pay the tax at the end of each quarter. Estimates by the USTR indicate that the value of the DST payable by US-based company groups to India will be up to approximately $55 million per year.
