The USTR has condemned the digital services taxes adopted by India, Italy, and Turkey in recent years and has claimed that these tax practices are discriminatory against American companies.
India is one of the fastest-growing digital economies in the world and the presence of Indians in the digital space is immensely growing. The presence of a number of US tech giants, including Apple, Amazon, Facebook, and Google has also increasingly grown in the past few years, not only in India but in other countries of the world as well. According to recent news, fears have been raised about the prospect of a new United States trade war with several different countries over their decision to impose taxes on the country’s tech giants.
A federal investigation in the United States has condemned that digital services taxes adopted by India, Italy, and Turkey in recent years discriminate against American companies. The US Trade Representative (USTR) said that during its investigations into these three nation’s digital services taxes in June last year, the countries were found to be inconsistent with international tax principles, unreasonable and burdening or restricting US commerce.
In June, the USTR started investigations into the moves of at least 10 countries, citing Section 301 of the US Trade Act of 1974, which allows it to retaliate for trade practices it deems unfair. It’s important to note here that it is the same tool that the US used to justify tariffs on Chinese goods for alleged theft of intellectual property.
India defends equalisation tax:
The USTR investigations concluded that India’s two percent digital services tax on e-commerce supply discriminates against American companies and is inconsistent with international tax principles. After these allegations, India soon defended its two percent equalisation tax (also known as Google Tax) and said that it does not discriminate against US companies as it applies equally to all non-resident e-commerce operators irrespective of their country of residence.
It is also reported that the USTR in a statement has also said that its investigation has led to the conclusion that the tax applied by the Indian government is discriminatory as it exempts Indian companies and targets non-Indian firms. It was also claimed that with this practice by India, the US firms are getting severely affected. The USTR pointed out that of the 119 companies that it identified as likely liable under the digital services tax, 86 were American.
Similar determinations were also made against Italy and Turkey.
To this, the Central Government in a release said, “The purpose of the equalisation tax is to ensure fair competition, reasonableness and exercise the ability of governments to tax businesses that have a close nexus with the Indian market through their digital operations, while India-based e-commerce operators are already subject to taxes in the country for revenue generated from the Indian market.”
US plans to suspend tariffs on French goods:
The US is now planning to suspend the tariffs it has applied on French cosmetics, handbags, and other imports in response to France’s tax on big tech companies like Facebook Inc. and Amazon.com Inc.
The United States Trade Representative threatened to impose the tariffs last year, in retaliation for France’s three percent levy on certain revenue from big technology companies, which the US said unfairly targeted American businesses. The USTR said the 25 percent tariffs on imports of the French goods, which are valued at around $1.3 billion annually would be suspended indefinitely.
France implemented its tax on digital revenue in 2019 to put pressure on the talks to advance, but the US said the unilateral move unfairly targeted American companies.