By Julie Martin, MNE Tax
Digital services taxes enacted in India, Italy, and Turkey discriminate against US multinational companies within the meaning of Section 301 of the US Trade Act of 1974; however, for now, no trade actions are recommended, the Office of the US Trade Representative has concluded.
Moreover, a previous recommendation to impose tariffs retaliating against France’s digital services tax has been suspended, the USTR said, in January 6 and 7 announcements. Thus, the USTR has suspended its December 2019 decision proposing retaliatory tariffs on French luxury goods of up to 100 percent or fees or restrictions on French services.
The USTR added that, to provide a coordinated action, it will announce its recommended response to the France, India, Italy, and Turkey digital services taxes once it completes pending investigations into digital services taxes imposed or proposed by Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the UK. Since June 2, 2020, the USTR has been investigating whether to recommend retaliation for these taxes under Section 301 of the US Trade Act of 1974.
“Those investigations have significantly progressed, but have not yet reached a determination on possible trade actions,” the office said.
The USTR report addressing India’s equalisation levy notes that the 2 percent tax on revenue generated from digital services in India specifically exempts Indian companies.
“The result is that US “non-resident” providers of digital services are taxed, while Indian providers of the same digital services to the same customers are not. This is discrimination in its clearest form.” The report concludes that the India tax is “discriminatory on its face.”
The Section 301 report on Italy’s digital services tax or imposta sui servizi digitali, adopted December 27, 2019, notes that the tax applies only to companies that, during the previous calendar year, generated €750 million (USD 919.82 million) or more in worldwide revenues and €5.5 million (USD 6.745 million) or more in revenues “deriving from the provision of digital services.”
The Italian tax’s revenue thresholds result in more than 62 percent of the companies subject to the tax being US companies while only 7 percent are Italian companies. Moreover, the narrow definition of “covered services” appears to target areas where US companies are market leaders.
Similarly, the Section 301 investigation of Turkey concluded that the country’s digital services tax discriminated against US companies because of high revenue thresholds that resulted in US companies, not Turkish companies, being subject to the tax.
The India, Italy, and Turkey reports also concluded that the taxes were inconsistent with standard principles of international taxation and that the burdens of the tax restrict US commerce.
Julie Martin
Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.
Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.
Julie can be reached at [email protected].
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