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US initiates probe against India over taxes on foreign tech firms

In addition to India, the United States is also initiating investigations against similar digital services taxes (DST) imposed by countries such as Austria, Brazil, the Czech Republic, the European Union, Indonesia, Italy, Spain, Turkey, and the United Kingdom (UK)

twitter-logoJoe C Mathew | June 3, 2020 | Updated 10:21 IST
US initiates probe against India over taxes on foreign tech firms
In the case of India, the taxation decision under question came in March 2020, when India adopted a 2% tax on digitisation transactions

US President Donald Trump's administration on Tuesday initiated an investigation to probe India's decision to tax digital transactions of foreign companies like Amazon operating in the country.

Stating that such actions can be unfair or discriminatory, the Office of the U.S. Trade Representative (USTR), the agency responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and overseeing negotiations with other countries, said the public response as submissions for and against such investigations will be accepted by the agency till July 15.

In addition to India, the USTR is also initiating investigations against similar digital services taxes (DST) imposed by countries such as Austria, Brazil, the Czech Republic, the European Union, Indonesia, Italy, Spain, Turkey, and the United Kingdom (UK).

Also Read: Tax on online ads on Google, Facebook makes govt richer by Rs 939 crore

The investigation will initially focus on the following concerns with DSTs: discrimination against U.S. companies, retroactivity, and possibly unreasonable tax policy, the agency stated.

A Federal Register notice issued by the agency says that in the case of tax policy, the investigation will look into the divergence DST norms may take as compared to the U.S. tax system and the international tax system in several respects, including extraterritoriality; taxing revenue not income, and the purpose of penalising particular technology companies for their commercial success.

Also Read: US assures support to American tech firms in India

In the case of India, the taxation decision under question came in March 2020, when India adopted a 2% tax on digitisation transactions. "The tax applies only to non-resident companies, and covers online sales of goods and services to, or aimed at, persons in India. The tax applies only to companies with annual revenues in excess of approximately Rs. 20 million (approximately US$ $267,000). The tax went into effect on April 1, 2020", USTR notes.

"President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies," stated USTR Robert Lighthizer. "We are prepared to take all appropriate actions to defend our businesses and workers against any such discrimination," he enunciated.

Also Read: "Innovation Should Be Given a Boost Through Tax Incentives"

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