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Digital services tax

Digital services tax

Context:

  • The United States announced further suspension of punitive tariffs for six months on India, Austria, Italy, Spain, Turkey, and the United Kingdom

Key Details:

  • Meanwhile it continues to resolve the digital services taxes investigation amid the ongoing multilateral negotiations at the OECD and the G20.

  • Multilateral solution: The United States is focused on finding a multilateral solution to a range of key issues related to international taxation, including our concerns with digital services taxes.

  • The United States remains committed to reaching a consensus on international tax issues through the OECD and G20 processes.

  • Today’s actions provide time for those negotiations to continue to make progress while maintaining the option of imposing tariffs under Section 301 if warranted in the future.

US investigation regarding digital services taxation:

  • The US has conducted a year-long investigation into digital services taxes imposed by countries, stating that they are against tech companies like Apple, Amazon, Google and Facebook.

  • USTR determined that the digital services taxes adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom discriminated against US digital companies and were inconsistent with principles of international taxation and burdened US companies.

  • The US announced 25 % tariffs on over $2 billion worth of imports from these six countries but then immediately suspended the duties to allow time for international tax negotiations.

Digital Services Taxes:

  • The “digital services tax” (DST) is a levy on the overall revenues earned by the supplier of specific digital services.

  • The DST should not be confused with the so-called “Netflix tax,” which one may find in some western countries.

  • The Netflix tax is essentially a “value-added tax” on digital services where the consumer bears the entire tax burden on the value of the final product.

Case against India:

  • In the case of India, the USTR’s proposed course of action includes additional tariffs of up to 25 per cent ad valorem on an aggregate level of trade that would collect duties on goods of India in the range of the amount of DST that India is expected to collect from US companies.

  • Around 26 categories of goods are in the preliminary list of products that would be subject to the additional tariffs.

Digital services taxes in India:

  • Government had moved an amendment in the Finance Bill 2020-21 imposing a 2 % digital service tax on trade and services by non-resident e-commerce operators with a turnover of over Rs 2 crore.

  • Thus effectively expanding the scope of equalisation levy that, till last year, only applied to digital advertising services.

  • The new levy became applicable from April last year has expanded the ambit of the equalisation levy for non-resident e-commerce operators involved in supply of services, including online sale of goods and provision of services.

  • E-commerce operators are obligated to pay the tax at the end of each quarter.

  • USTR estimates indicate that the value of the DST payable by US-based company groups to India will be up to approximately $55 million per year.

Source: Indian Express