US proposes retaliatory action against India's equalisation levy

Washington [US], March 27 : The United States has proposed retaliatory action against taxation including equalisation levy (EL) on digital services by India and other countries.
New Delhi says it will examine the proposed action and will act accordingly. "The government of India will examine the proposed action with stakeholders concerned and take suitable measures keeping its trade and commercial interest of the country and overall interest of its people."
The other countries under investigation by the US Trade Representative include Italy, Turkey, the United Kingdom, Spain and Austria.
On January 6, the USTR released its findings on section 301 investigation into India's digital services tax (DST) and concluded that it discriminates against US digital companies by its structure and operation.
The findings said India's DST is unreasonable as 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.
India's DST burdens or restricts US commerce. Similar findings and determination were also notified by the USTR on investigation against other countries including Italy, Turkey, the United Kingdom, Spain and Austria.
India made a strong case that the EL is not discriminatory and only seeks to ensure a level-playing field with respect to e-commerce activities undertaken by entities with permanent establishment in India.
It was also clarified that the EL was applied only prospectively, and has no extra-territorial application since it is based on sales occurring in the territory of India through digital means, said sources.
India-based e-commerce operators are already subject to taxes in India for revenue generated from the Indian market. However, in the absence of the EL, non-resident e-commerce operators (not having any permeant establishment in India but significant economic presence) are not required to pay taxes in respect of the consideration received in the e-commerce supply or services made in the Indian market.
The EL levied at 2 per cent is applicable on non-resident e-commerce operator not having a permanent establishment in India. The threshold for this levy is Rs 2 crore which is very moderate and applies equally to all e-commerce operators across the globe having business in India.
The levy does not discriminate against any US companies as it applies equally to all non-resident e-commerce operators, irrespective of their country of residence.
In addition, EL was one of the methods suggested by 2015 OECD/G20 Report on Action 1 of BEPS Project which was aimed at tackling the taxation challenges arising out of digitisation of the economy.
When the United States requested for bilateral consultations in this matter, India submitted its comments to the US Trade Representative on July 15, 2020 and participated in bilateral consultation held on November 5.