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US proposes action against India's equalisation levy
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SME Times News Bureau | 27 Mar, 2021
The United States Trade Representative has announced initiation of
investigation against the taxation on digital services adopted or under
consideration by countries including the equalisation levy applied by
India.
The other counties under investigation included Italy, Turkey, UK, Spain and Austria.
A
statement from the office of the USTR said that in January it was
found that digital service taxes (DST) adopted by Austria, India, Italy,
Spain, Turkey, and the United Kingdom were subject to action under
Section 301 because they discriminated against US digital companies,
were inconsistent with the principles of international taxation, and
burdened US companies.
USTR 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.
"The United States is committed
to working with its trading partners to resolve its concerns with
digital services taxes, and to addressing broader issues of
international taxation," said Ambassador Katherine Tai.
"The
United States 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."
Among the proposed actions, the Joe Biden
administration has proposed to impose retaliatory tariffs up to 25 per
cent on around 40 Indian products including shrimps, basmati rice, gold
and silver items.
The Government of India will examine the
proposed action with the stakeholders concerned and would take suitable
measures keeping its trade and commercial interest of the country and
overall interest of its people, according to official sources.
With
regard to India, the investigation was targeted on the 2 per cent
equalisation levy (EL)levied by India on e-commerce supply of services.
The investigation included whether the EL discriminated against US
companies, was applied retrospectively, and diverged from U.S or
international tax norms due to its applicability on entities not
resident in India.
The U.S. requested for bilateral
consultations in this matter, and India submitted its comments to the
USTR on 15 July 2020, participated in the bilateral consultation held on
5 Nov 2020.
India made a strong case that the 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 also clarified that the equalisation
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.
India based e-commerce operators are
already subject to taxes in India for revenue generated from Indian
market. However, in the absence of the levy, non-resident e-commerce
operators, not having any permanent establishment in India but with
significant economic presence, are not required to pay taxes in respect
of the consideration received in the e-commerce supply or services made
in the Indian market.
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