Digital tax issue: US suspends additional tariffs on India, 5 other countries

New Delhi: The US on Wednesday announced tariffs on six countries, including India, that have imposed or are considering equalisation levy/digital services tax on e-commerce companies but immediately suspended the taxes for up to six months to provide additional time to complete the ongoing multilateral negotiations on international taxation at the OECD and G20.

United States Trade Representative (USTR) Katherine Tai, in a statement, announced the conclusion of the one-year Section 301 investigations of Digital Service Taxes (DSTs) adopted by Austria, India, Italy, Spain, Turkey and the UK.

"The final determination in those investigations is to impose additional tariffs on certain goods from these countries, while suspending the tariffs for up to 180 days to provide additional time to complete the ongoing multilateral negotiations on international taxation at the OECD and in the G20 process," the statement said.

In March last year, the USTR has proposed retaliatory trade actions against India and certain other countries that have imposed or are considering equalisation levy/digital services tax on e-commerce companies.

USTR has proposed to impose additional tariffs of up to 25 per cent ad valorem on an aggregate level of trade that would collect duties on Indian goods in the range of the amount of DST that India is expected to collect from US companies.

On the announcement, government sources in New Delhi said the postponement of tariffs is similar to the DST investigation on France, where USTR indefinitely postponed tariffs after the first six month delay to pursue negotiations at the OECD.

Further, Tai stated that the US is focused on finding a multilateral solution to a range of key issues related to international taxation, including its concerns with digital services taxes.

"The US 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," she said.

On June 2, 2020, USTR initiated investigations into DSTs adopted or under consideration in 10 jurisdictions, including India.

In January this year, following comprehensive investigations, USTR alleged that the taxes adopted by these countries discriminate against US digital companies and were inconsistent with principles of international taxation.

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 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.