Google Tax: Expect global pact soon, says Commerce secretary

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June 04, 2021 1:15 AM

On Wednesday, the US announced a 25% tariff on annual imports of over $2 billion from six countries (India, Britain, Austria, Italy, Spain and Turkey) it intended to target. However, it immediately held back the punitive steps to allow time for global tax negotiations.

India had strongly refuted the USTR claims and asserted that its equalisation levy or the so-called ‘Google tax’ was “non-discriminatory”, had only prospective application and didn’t specifically target American companies.India had strongly refuted the USTR claims and asserted that its equalisation levy or the so-called ‘Google tax’ was “non-discriminatory”, had only prospective application and didn’t specifically target American companies.

A day after the US deferred its plan to slap punitive tariffs on six countries, including India, by six months for imposing a digital services tax (DST) on e-commerce companies, India’s commerce secretary Anup Wadhawan expected a global understanding on the levy soon.

Asked about the US move, Wadhawan told reporters that a global agreement on the taxation matter relating to e-commerce is important, as it “doesn’t just concern India but many others”. The OECD has already taken an initiative to hammer out an international agreement on such taxations, he added.

In a report in January, the USTR office had claimed the DST imposed by India, Italy and Turkey discriminated against American companies and were inconsistent with international tax principles. India had strongly refuted the USTR claims and asserted that its equalisation levy or the so-called ‘Google tax’ was “non-discriminatory”, had only prospective application and didn’t specifically target American companies.

On Wednesday, the US announced a 25% tariff on annual imports of over $2 billion from six countries (India, Britain, Austria, Italy, Spain and Turkey) it intended to target. However, it immediately held back the punitive steps to allow time for global tax negotiations.

In a statement, US Trade Representative (USTR) Katherine Tai said: “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.”

The USTR had proposed additional tariffs of up to 25% ad valorem on 26 categories of Indian goods, expecting to match the duties that New Delhi would garner by imposing its equalisation levy. The goods include shrimps, basmati rice, cigarette paper, cultured pearls, semi-precious stones, silver powder and silver jewellry, gold mixed link necklaces and neck chains and certain furniture of bentwood.

Given that the world is getting increasingly more digitalised and companies are generating revenue out of transactions undertaken abroad, several countries have begun to tax such transactions that originate from their territories. The US, which is home to several e-commerce giants, including Amazon, has opposed such a move.

As for India, its levy is a sort of digital tax on non-resident e-tailers at 2% on the revenue they generate in India from e-commerce supply or services. It was introduced in the Finance Act 2020 (effective from April 1, 2020) by widening the scope of an existing equalisation levy to include e-commerce players and intermediaries.

Earlier, the equalisation levy (at 6%) was rolled out in 2016 and slapped on the revenues generated on B2B digital advertisements and allied services of the resident service provider. Last year’s change was brought in to nullify the advantage of foreign-commerce firms sans a physical presence in India over domestic competitors.

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