US launches probe into digital tax
The government imposed a new tax of 2% in April on digital services rendered in India against payments collected abroad.Updated: Jun 04, 2020 02:48 IST
The US on Tuesday started an investigation into taxes on digital services in effect or being considered in other countries and their impact on American businesses, which could lead to retaliatory trade actions and open up potentially another front in India’s persisting trade differences with Washington.
The government imposed a new tax of 2% in April on digital services rendered in India against payments collected abroad. The levy is restricted to non-resident companies and is expected to chiefly affect American digital services giants Google, Facebook, Apple and Amazon. People familiar with developments said New Delhi has no plans to change its levy. “These investigations are just the start of a process. It’s not as if some actions have already been taken by the US,” said one of the people. “Everything will depend on the findings of the investigations. So, it’s too early to say.” Other countries that have levied this tax or are considering them are Austria, Brazil, the Czech Republic, the European Union, Indonesia, Italy, Spain, Turkey, and the UK. Most of them are allies of the US.
“President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” said Robert Lighthizer, the US trade representative and America’s top trade negotiator, in a statement announcing the investigation. “We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”
The investigation has been launched under Section 301 of the Trade Act, 1974, the same provision that was used by the Trump administration to slap an additional 25% tariff on $50 billion worth of imports from China in 2018, triggering a trade war between the world’s two largest economies.
Any potential action against India would add to a list of trade differences that the two countries have tried to reconcile despite pressure mounted in recent years by President Donald Trump through public and private exhortation. Trump ended India’s special trade status last summer. Amit Maheshwari, a partner at AKM Global, a tax and consulting firm, said: “The US investigation will focus on whether the digital services taxes (DSTs) discriminate against US companies, they are retroactive, and they reflect unreasonable tax policy, which would be when the DSTs may diverge from norms reflected in the US tax system and the international tax system in several respects such as extra-territoriality, taxing revenue not income, and a purpose of penalising particular technology companies for their commercial success.”
“The Indian tax, which is the subject of this investigation, was rushed in the recent Finance Act and made into law from April 1, 2020, without consultations and gave little time for the industry to prepare. Several countries, including India, are adopting unilateral measures in the absence of multilateral consensus spearheaded by the Organisation for Economic Cooperation and Development . We don’t foresee global consensus anytime soon,” he added.