USTR Proposes Retaliatory Trade Action Against India Over Digital Tax
The United States Trade Representative (USTR) has proposed retaliatory trade actions against India and certain other countries that have or will be imposing a levy or digital services tax on e-commerce companies.
It has issued notices seeking public comments on proposed trade actions against six countries, including India.
The USTR, in a statement, said that it is proceeding with the public notice and comment process on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations
With respect to the Indian Digital Services Tax, the USTR has said that it has requested written comments regarding a potential trade action in connection with Sec. 301 investigation of India's Digital Services Tax.
Sources in the government on Saturday said that India will examine the proposed action with stakeholders and would take suitable measures, keeping in mind the trade and commercial interest of the country and overall interest of its people.
That comes after the U.S. initiated an investigation in June 2020 under Sec. 301 of the US Trade Act, 1974 against the taxation on digital services adopted or under consideration by India, Italy, Turkey, U.K., Spain and Austria.
The report of this investigation in January this year concluded that India's equalisation levy, by its structure and operation, discriminates against U.S. digital companies.
This was strongly opposed by India.
The U.S. had requested for bilateral consultations in this matter, and India had submitted its comments to the USTR on July 15, 2020. It had also participated in a bilateral consultation held on November 5, 2020.
"Consequent to the determination and findings, now USTR has proposed a retaliatory action under Section 301 against India's equalisation levy, along with other countries," a source said.
U.S. Trade Representative Katherine Tai has stated that the U.S. is committed to working with its trading partners to resolve its concerns with digital services taxes and address broader issues of international taxation.
"The US remains committed to reaching an international consensus through the OECD process on international tax issues. However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs," Tai has said.
According to the USTR document, the proposed action includes imposition of additional ad valorem tariffs on certain products from India, such as sea food, bamboo products, semi-precious and precious stones, furniture, cork and cigarette papers.
"In particular, USTR proposes to impose additional tariffs of up to 25% ad valorem on an aggregate level of trade that would collect duties on goods of India in the range of the amount of DST (digital services tax) that India is expected to collect from U.S. companies," it said.
Initial estimates indicate that the value of the DST payable by U.S.-based company groups to India will be up to about $55 million per year, it added.
India has earlier stated that the equalisation levy is not discriminatory and only seeks to ensure a level-playing field with respect to e-commerce activities undertaken by entities with permanent establishment in India.
It was also clarified by India to the U.S. that the levy was applied only prospectively, and has no extra-territorial application, since it is based on sales occurring in the territory of India through digital means.