USTR announces Section 301 investigation against India’s digital services taxes

The US Trade Representative's office has announced that it will start Section 301 investigations against India and nine others for imposing or considering digital services taxes that may affect American companies.

New Delhi is set to oppose the move as it believes that it has not gone against multilateral rules while imposing its taxes, according to an official tracking the development.

India has been targeted for announcing a two per cent tax on all non resident e-commerce companies that sell more than ₹2 crore ($267,000) of in-scope goods or services to Indian customers in the Union Budget for 2020-21, according to the order.

“New Delhi is likely to submit its comments to the USTR against the investigations as India’s commitments under the General Agreement on Trade in Services allow such taxes. Moreover, India’s taxes do not specifically target American companies. The investigation needs to be dropped” an official tracking the development told BusinessLine.

The Section 301, adopted by the US in 1974, allows the US President to unilaterally impose tariffs or other trade restrictions on foreign countries.

President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies, said USTR Robert Lighthizer in a statement on June 2. "We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination," the statement added.

Other countries that are being investigated include Austria, Brazil, the Czech Republic, the EU, Indonesia, Italy, Spain, Turkey, and the United Kingdom.

Although India’s tax on just non-resident e-commerce companies means that national treatment is not being extended to trading partners, experts say that multilateral rules allow that.

“If India has not taken commitment in a services sector, then it is not required to give national treatment in that sector. We have not taken any such commitment under GATS. This gives us flexibility to impose discriminatory tax on services imports in sectors where we have not taken a commitment,” a Delhi-based trade expert explained.

The USTR’s office has invited public comments on the announcement but has said that it may not be able to hold public hearings because of the Covid-19 restrictions. "USTR is not at this time scheduling a public hearing in these investigations," the USTR's office said.

“Washington has been carrying out these unilateral investigations against trading partners which totally undermine the role of the World Trade Organisation. Such unilateral actions against a country may lead to counter-actions,” the expert said.