India's digital tax which US launches in pandemic

America on Tuesday initiated an investigation into digital services taxes (DST) that have been considered by 10 of its trading partners including India that could invite inflicting tariff sanctions. The other countries being investigated are Austria, Brazil, the Czech Republic, the European Union, Indonesia, Italy, Spain, Turkey, and the United Kingdom.

"President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,"

US Trade Representative (USTR) said the issue is regarding -

1. Corporate taxes are levied on profits.
2. But multinational companies often move profits, through smart accounting, to low-tax jurisdictions.
3. Nearly all of the major tech firms, from Apple to Google to Facebook, have their European headquarters in Ireland, which levies lower taxes than other major European Union countries.

Profits from sales in the EU are routed through Irish and Dutch subsidiaries. Google and Apple have done so.

An example of India:

In November 2018, the Economic Times reported that Google India remitted a total of Rs 16,119.6 crore i.e. $2.18 billion over five years. Around  50-60% of its revenue over the period has been shifted to its parent company's subsidiaries in Singapore and Ireland towards the “purchase of advertising space”. The company marked this as “miscellaneous expenses”, thereby reducing its profits here.

Action Taken by Indian Govt. 

•In 2016, the European Commission ordered Apple to pay nearly $15 billion to Ireland for having received “illegal tax benefits” over two decades.

•Last July, France enforced a digital tax of 3% on revenues of large internet companies — revenues cannot be moved as easily as profits.

India's Action -  In the year 2016, India has charged a tax of  6% tax on ad spends of technology companies. The Govt of India collected Rs 900 crore in Financial Year 2019.

Through the Finance Act 2020, the government expanded the scope of the equalization levy to generate revenues by non-resident e-commerce companies operating in India. The 2% digital services tax came into effect on 1 April. The tax came as a surprise to e-commerce companies as the provision was not part of the finance bill and was introduced as an amendment at the last minute before the Parliament passed the bill. The 2% digital services tax which came into effect on 1 April. These efforts have displeased the US, which says it harms American companies. These days France, in particular, is also facing a lot of issues and retaliation from US companies.

The US investigation will focus on whether the digital services taxes (DSTs) discriminate against US companies. Also if it diverges from norms reflected in the international tax system.