US says India, Italy, and Turkey digital taxes are discriminatory, but won’t take any actions for now

Digital services taxes adopted by India, Italy, and Turkey in the past years discriminate against U.S. companies, the U.S. Trade Representative said on Wednesday.

USTR, which began investigations into the three nation’s digital services taxes in June last year, said it found them to be inconsistent with international tax principles, unreasonable, and burdening or restricting U.S. commerce.

In its detailed reports, which the office has made public, USTR studied how these digital taxes affected companies including Amazon, Google, Facebook, Airbnb, and Twitter. USTR said it conducted these investigations on the ground of Section 301 of the U.S. Trade Act of 1974.

India, which has become the largest market for Silicon Valley giants Google and Facebook, introduced digital taxes in 2016 to target foreign firms. Last year, the world’s second largest internet market expanded the scope of its levy to cover a range of additional categories.

USTR investigation found (PDF) that New Delhi was taxing “numerous categories of digital services that are not leviable under other digital services taxes adopted around the world” and that the aggregate tax bill for U.S. companies could exceed $30 million per year.  It also took issue with India not levying similar taxes on local companies.

Despite the strong findings on three nations’ digital services taxes, USTR said it is not taking any specific actions “at this time” but will “continue to evaluate all available options.”

U.S. tech companies have in the past supported terms brokered by the Organisation for Economic Co-operation and Development. But OECD, which is currently in the middle of working out technical details for agreements for over a 100 nations, doesn’t expect to finish the work until mid-2021. In the absence of OECD agreements, various countries are moving forward with their own versions of the taxes.

Since June last year, USTR has initiated investigations into digital services tax instituted — or proposed to be put in place – by a number of countries including Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, the United Kingdom, and France, which resumed collecting digital services tax from US companies late last year.

In retaliation, USTR had set a January 6 deadline for levying a 25% tariff on a range of French imported goods including cosmetics and handbags.

USTR did not say whether the tariff had been enforced, but in a statement said it expects to announce the progress or completion of additional investigations in the near future.