On January 12, 2021, the Office of the US Trade Representative (USTR) published in the Federal Register individual determinations regarding whether the Digital Services Taxes (DST) of India, Turkey and Italy are actionable pursuant to Section 301 of the Trade Act of 1974.
- India: USTR has determined that India’s DST is unreasonable or discriminatory and burdens or restricts US commerce and thus is actionable under Section 301. Based on information obtained during the investigation, which was initiated June 2, 2020, USTR has prepared a comprehensive report on India’s DST (India DST Report). The India DST Report, which is posted on the USTR website, includes a full description of India’s DST. To summarize, India adopted the operative form of its DST on March 27, 2020. India’s DST imposes a two percent tax on revenue generated from a broad range of digital services offered in India, including digital platform services, digital content sales, digital sales of a company’s own goods, data-related services, software-as-a-service, and several other categories of digital services. India’s DST only applies to “non-resident” companies. The tax applies as of April 1, 2020. Consultations with India were held on November 5, 2020.
- Turkey: USTR has determined that Turkey’s DST is unreasonable or discriminatory and burdens or restricts US commerce and thus is actionable under Section 301. Based on information obtained during the investigation, which was initiated on June 2, 2020, USTR has prepared a comprehensive report on Turkey’s DST (Turkey DST Report). The Turkey Report, which is posted on the USTR website, includes a full description of Turkey’s DST. To summarize, Turkey adopted the operative form of its DST on December 7, 2019. The DST applies to companies that, during the previous calendar year, generated €750 million or more in worldwide revenues and TRY 20 million or more in revenues deriving from the provision of digital services in Turkey. The tax applies as of March 1, 2020. Consultations with Turkey were held on September 29, 2020.
- Italy: USTR has determined that Italy’s DST is unreasonable or discriminatory and burdens or restricts US commerce and thus is actionable under Section 301. Based on information obtained during the investigation, which was initiated on June 2, 2020, USTR has prepared a comprehensive report on Italy’s DST (Italy DST Report). The Italy DST Report, which is posted on the USTR website, includes a full description of Italy’s DST. To summarize, Italy adopted the operative form of its DST on December 27, 2019. The DST applies to companies that, during the previous calendar year, generated €750 million or more in worldwide revenues and €5.5 million or more in revenues deriving from the provision of digital services in Italy. The tax applies as of January 1, 2020. Consultations were held with Italy on November 10, 2020.
Based on the information obtained during the investigations, and taking account of public comments and the advice of the Section 301 Committee and advisory committees, the USTR has determined that the act, policy, or practice covered in the investigation, namely the DSTs, are unreasonable or discriminatory and burden or restrict US commerce, and thus are actionable under section 301(b) of the Trade Act. In particular:
1. That all three DSTs, by their structure and operation, discriminate against US digital companies due to the selection of covered services, and in the case of Italy and Turkey, the revenue thresholds, and in the case of India, its applicability only to non-resident companies;
2. That all three DSTs are unreasonable because they are inconsistent with principles of international taxation, including due to their application to revenue rather than income and extraterritoriality. In addition the Indian and Turkish DSTs fail to provide tax certainty; and
3. All three DSTs burden or restrict US commerce.
Sections 301(b) and 304(a)(1)(B) of the Trade Act provides that if the USTR determines that an act, policy, or practice of a foreign country is unreasonable or discriminatory and burdens or restricts United States commerce, the USTR shall determine what action, if any, to take under Section 301(b). The notices stated that these matters will be addressed in subsequent proceedings under Section 301.
