US to investigate digital services taxes by several countries including India: Official

The United States has launched an investigation into the new two per cent tax India recently imposed on all foreign billings for digital services provided in the country.

The investigation will assess the extent of impact of the new tax on the US tech companies like Google, Facebook and Amazon. It may lead to the US retaliating by imposing tariffs on imports from India.

The US Trade Representative (USTR), Robert Lighthizer, announced the launch of the investigation into the Digital Services Tax (DST) introduced or likely to be introduced by India and some other nations, like Austria, Brazil, Czech Republic, Italy, Indonesia, Turkey, Spain and the United Kingdom. The investigation by the USTR’s office will also target the European Union, which is considering a DST as part of the financing package for its proposed plan for reviving the economy ravaged by the COVID-19 crisis.

“President (Donald) Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” said Lighthizer, adding: “We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”

Prime Minister Narendra Modi’s government in New Delhi in March announced a 2 per cent DST, applicable only on non-resident companies, covering online sales of goods and services to, or aimed at, persons in India. The tax, which came into effect on April 1, applies only to companies with annual revenues in excess of approximately Rs 20 million (approximately $ 267,000).

Google, Facebook, Amazon and other US tech companies already requested the Modi Government to defer imposition of the new tax by at least six months so that they could get enough time, not only to overcome technical and commercial challenges for compliance, but also to recover from COVID-19 crisis.

The USTR launched the investigation in accordance with the Section 301 of the 1974 Trade Act, which gave it broad authority to probe and respond to a foreign country's action that may be unfair or discriminatory and negatively affect US companies.