USTR to terminate proposed retaliatory action against India’s digital tax

Amiti Sen New Delhi | Updated on November 25, 2021

Welcomes agreement reached between India, US on treatment of DST in ‘interim period’ before implementation of OECD pact

The United States Trade Representative’s (USTR) office has welcomed the political agreement reached with India on the 2 per cent Digital Services Taxes (DSTs) or equalisatoon levy imposed by the country on the revenues of non-resident e-commerce players and will take formal steps to terminate the currently suspended retaliatory duties it had proposed to impose on some Indian imports.

The agreement, announced by India’s Ministry of Finance and the US Department of the Treasury on Wednesday, on how DST is to be treated during the interim period prior to full implementation of Pillar 1 of the OECD agreement on the matter.

“USTR is proceeding with the formal steps required to terminate this Section 301 trade action, and in coordination with Treasury, will monitor implementation of the agreement going forward,” according to a release issued by the USTR’s office.

Two-pillar solution

On October 8, 2021, India and the US joined 134 other members of the OECD/G20 Inclusive Framework (including Austria, France, Italy, Spain, and the UK) in reaching agreement on the statement on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy.

The agreement announceded by the US and India on Wednesday is on actions to be taken in the interim period of implementation of the global taxation agreement.

“Under this agreement, applying the same terms as the earlier agreements with Austria, France, Italy, Spain, the UK, and Turkey, in defined circumstances the liability from India’s equalisation levy on e-commerce supply of services that US companies accrue in India during the interim period will be creditable against future taxes accrued under Pillar 1 of the OECD agreement,” the USTR statement said.

The period during which the credit accrues will be from April 1, 2022 until either the implementation of Pillar 1 or March 31, 2024 (whichever is earlier).

Retaliatory tariffs

In March this year, Washington had proposed 25 per cent retaliatory tariffs on about 40 products including shrimps, wooden furniture, gold, silver and jewellery items and basmati rice. The levies could add up to about $55 million which was the approximate amount of the DST payable by US-based companies such as Google, Amazon, Linkedin and Facebook, per calculations made by the USTR office.

However, in June, the US suspended retaliatory tariff imposition on six countries, including India, for a period up to 180 days to provide time for negotiations at the OECD and G20 on international taxation.

Published on November 25, 2021

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