TThis week, the U.S. Department of the Treasury announced that it had reached agreements with both India and Turkey regarding the treatment of Digital Services Taxes by those countries during the interim period prior to full implementation of a new international tax framework in 2023.
Accordingly, the Office of the U.S. Trade Representative will suspend the final two outstanding Section 301 investigations into DSTs that were launched in 2020 by the prior administration.
USTR last month suspended its Sec. 301 probes into DSTs imposed by France, the United Kingdom, Spain, Italy, and Austria after reaching a “pragmatic solution” that allows the countries to continue collecting DSTs prior to implementation of the new Organization for Economic Cooperation and Development/G20 global tax framework without the threat of U.S. retaliatory tariffs.
Agreement with Turkey
A new law was enacted in Turkey in 2019 that became effective March 1, 2020, which levied a DST at the rate of 7.5% on “in-scope revenues” generated in that country from a broad range of digital services (e.g., computer programs, applications, music, video, games, etc) provided by companies with global revenues of at least €750 million and generating revenues of at least 20 million Turkish Lira (roughly $3.3 million) in Turkey from in-scope services.
Under the deal reached this week with the U.S., Turkey has agreed to remove its existing DST before the entry into force of Pillar 1 of the Inclusive OECD/G20 framework. The agreement also allows the liability for DSTs that U.S. companies accrue during the interim period to be creditable against future income taxes once the new framework comes into force in 2023.
Agreement with India
India introduced a so-called Equalisation Levy in 2016, with the intention of taxing the income accruing to foreign e-commerce companies from sales of various digital services in the country (the scope of which was expanded in 2020).
Earlier this year, Washington had proposed 25% retaliatory tariffs on roughly 40 products including shrimp, wooden furniture, gold and silver jewelry items, and basmati rice.
With India’s agreement to a transition from its existing equalization levy to the new multilateral solution, the United States has agreed to terminate the currently-suspended additional duties on goods of India that had been adopted in the DST Section 301 investigation. USTR also says it is proceeding with the formal steps required to terminate the Sec. 301 trade action.
While the terms of the agreement are the same as the previously mentioned deals with six other countries, that with India establishes a different transitional period than those in the other arrangements.
India’s transitional period will begin on April 1, 2022, and end on March 31, 2024, or the implementation date of the OECD deal if it comes first. The other transitional periods start on Jan. 1 and end on Dec. 31, 2023, or when the OECD deal takes effect.