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India’s digital tax is discriminatory but won’t retaliate now, US says

The office of the US Trade Representative said the taxes are 'inconsistent with prevailing principles of international taxation, and burden or restricts U.S. commerce.'

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The U.S. said decisions by India, Italy and Turkey to tax local revenue of Internet giants such as Facebook Inc. discriminates against American companies, but won’t be taking action against the countries for now.

The taxes are “inconsistent with prevailing principles of international taxation, and burden or restricts U.S. commerce,” the office of the U.S. Trade Representative said in a statement Wednesday. While it won’t retaliate now, the USTR will “continue to evaluate all available options,” it said.

The countries are among several that have instituted so-called digital services taxes, or levies on local sales of companies including Alphabet Inc.’s Google.

In June, the USTR started investigations into the moves of at least 10 countries, citing Section 301 of the U.S. Trade Act of 1974, which allows it to retaliate for trade practices it deems unfair. It’s the same tool used to justify U.S. tariffs on Chinese goods for alleged theft of intellectual property.

Should the U.S. decide to impose duties on imports from these countries, it likely would be up to the incoming Biden administration to implement that decision — as time is running out for the current USTR to prepare tariff lists and go through a public comment period before the duties take effect.

Plans for an international digital-tax agreement brokered by the Organization for Economic Cooperation and Development have been delayed until at least summer of this year after it became clear the initial deadline of reaching a deal in 2020 wouldn’t be met. The goal had been to replace individual country’s digital taxes with a global plan.

Without an OECD agreement, countries are going ahead with their own versions of the taxes, which could result in a world-wide retaliatory tax and tariff war between the U.S. and nations that want a share of the taxes from American tech giants’ revenue. Belgium, Norway and Latvia are among countries who could introduce digital services taxes in 2021, while Spain and Czech Republic start collecting the tax this month.

French retaliation

The U.S. was due to start charging a 25% levy on imports of French makeup, handbags and soap on Wednesday worth about $1.3 billion annually in retaliation for the European country’s tax on the revenue of American tech companies. The original annual value of goods to be targeted was $2.4 billion.

The U.S. Trade Representative didn’t respond requests for confirmation that the tariffs went into force. Officials from the French finance ministry and the European Commission hadn’t received notices from the U.S. by the close of business Wednesday.

France implemented its tax on digital revenue in 2019 to put pressure on the talks to advance, but the U.S. said the unilateral move unfairly targeted American companies.

In January 2020, President Emmanuel Macron and U.S. counterpart Donald Trump agreed a truce in their dispute to give time for the international negotiations to reach a global deal, but the talks stumbled in October and France resumed collecting the tax in mid-December.

–With assistance from William Horobin, Laura Davison, Jonathan Stearns and Eric Martin.

-Bloomberg


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