The report said that the 2016 digital advertising tax is not the focus of this investigation.
The investigation, initiated by the USTR on June 2 previous year, said that this tax explicitly exempts Indian companies and only "non-residents" must pay the tax.
It should be business models, and not the digital economy, the USTR argued, that should be taxed. USTR noted that of the 119 companies liable under DST, 86 are us companies. In a bid to discredit the Indian tax administration, the USTR report said that not only was the text unclear but the authorities have not bothered to resolve the ambiguities. "This amounts to a failure to provide tax certainty, which contravenes a core principle of worldwide taxation", the USTR report said.More news: SpaceX begins its 2021 launch campaign Thursday evening
"The USTR completely ignores that existing worldwide tax principles do not in any manner preclude the ability of sovereign governments to adapt and evolve tools of taxation and applicable levies to address the complexities of the digital economy", said the law firm. Further, it alleged that it contravened global tax principles as revenues were taxed instead of income. This is inconsistent with the global tax principle that income - not revenue - is the appropriate basis for corporate taxation, said the report.
It said India had raised this aspect as well pursuant to the bilateral consultations, but the USA has not addressed this aspect.
According to the report, just four days later - absent any opportunity for public comment - the DST became law.
Firstly, it creates an additional tax burden for USA companies. Moreover, several aspects of the DST exacerbate this tax burden, including the DST's extraterritorial application, its taxation of revenue rather than income. This is because India levies digital tax on various categories of services that are not taxed in other countries.More news: Second nationwide dry run of Covid-19 vaccination drive being held today
Under the DST, if a company were to sell a movie to an Indian consumer, and deliver that content digitally, the proceeds of the sale would be taxable. "This brings more United States companies within the scope of the DST, and makes the measure significantly more burdensome", the investigation found. This includes the re-engineering of existing systems to collect and organise new and different types of information.
In addition to this, USTR said DST increases the compliance cost of companies, which could run into millions.
The probe also found that DST burdens United States companies by subjecting them to double taxation.
In this regard, the US requested for consultations, and India submitted its comments to the USTR on 15 July 2020, participated in the bilateral consultation held on 5 Nov 2020, emphasizing that the EL is not discriminatory; but on the contrary seeks to ensure a level-playing field with respect to e-commerce activities undertaken by entities resident in India, and those that are not resident in India, or do not have a permanent establishment in India.More news: PM says Canada may hold election soon