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United States says India's digital services tax is discriminatory

United States says India's digital services tax is discriminatory

CONTEXT:Google, Facebook, Amazon to testify in the US against French digital  service tax | Zee Business

India had adopted the operative form of its Digital Services Tax or DST on March 27, 2020.

he US has determined that India's Digital Services Tax is

  • Discriminatory and has an
  • Adverse impact on American commerce

and is actionable under the trade act.

Outgoing Trump administration has left the onus of taking any action against India under Section 301 of the US Trade Act to the incoming Biden administration.

NEWS IN DETAILS:

US OPINION/CRITICISM OF INDIA’S DIGITAL SERVICE TAX:

Burdens to double taxation: USTR describes DST as an outlier which burdens US companies by subjecting them to double taxation.

Against US digital companies: DST, by its structure and operation, discriminates against US digital companies, including due to the

  • Selection of covered services and
  • Its applicability only to non-resident companies.

Inconsistent with principles of international taxation: DST is unreasonable because it is inconsistent with principles of international taxation including due to its application to revenue rather than

  • Income,
  • Extraterritorial application, and
  • Failure to provide tax certainty.

Discrimination b/w USA & Indian Companies: US non-resident providers of digital services are taxed, while Indian providers of the same digital services to the same customers are not.

Sections 301(b) and 304(a)(1)(B) of the Trade Act:  It provide that if the US Trade Representative determines that an act, policy, or practice of a foreign country is unreasonable or discriminatory and burdens or restricts United States commerce, the US Trade Representative shall determine what action, if any, to take under Section 301(b).

INDIA’S RESPONSE/FEATURES OF INDIA’S DIGITAL SERVICE TAX:

Equally to all non-resident e-commerce: It said the 2 % equalisation levy does not discriminate against US companies as it applies equally to all non-resident e-commerce operators irrespective of their country of residence.

No retrospective element: Ministry of Commerce on 7th Jan 2020 said, there is no retrospective element as the levy was enacted before the 1st day of April, 2020, which is the effective date of the levy.

No extra-territorial application: It also does not have extra-territorial application as it applies only on the revenue generated from India.

Level-playing field: India seeks to ensure a level-playing field with respect to e-commerce activities undertaken by entities resident in India as well as those not residents in India or without permanent establishment in India.

Objective of DST: The purpose of the equalisation levy is to

  • Ensure fair competition,
  • Reasonableness and
  • Exercise the ability to tax businesses that have a close nexus with the Indian market through their digital operations.

DIGITAL SERVICES TAX OR DST:

These are taxes on revenues that certain companies generate from providing certain digital services to, or aimed at, users in those jurisdictions.

  • E.g. Digital multinationals like Google, Amazon and Apple etc.

India had adopted the operative form of its Digital Services Tax or DST on March 27, 2020.

The DST imposes 2% tax on revenue generated from a broad range of digital services offered in India, including

  • Digital platform services,
  • Digital content sales,
  • Digital sales of a company's own goods,
  • Data-related services,
  • Software-as-a-service, and
  • Several other categories of digital services.

India's DST applies only to non-resident companies. The tax applies as of April 1, 2020.

EQUALIZATION LEVY:

  • It was introduced in India in 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India.
  • It is aimed at taxing business to business transactions.

Source: business-standard