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US Trade Representative publishes report blasting India’s 2% Equalisation Levy

In a 41-page report released on January 6, the United States Trade Representative Robert Lighthizer criticised India's decision to impose an Equalisation Levy of 2% on digital services. "India’s [Equalisation Levy] is discriminatory on its face. The law explicitly exempts Indian companies, while targeting non-Indian firms. The result is that U.S. “non-resident” providers of digital services are taxed, while Indian providers of the same digital services to the same customers are not. This is discrimination in its clearest form," the USTR's report said. No enforcement action was announced, and the US Trade Representative's office said that they would be evaluating all options. The Indian government had introduced the Equalisation Levy in 2020. American companies have argued that the levy is overbroad in its scope; the OECD is negotiating a cross-border solution, but in the meantime warned that such unilateral levies can cause a global trade war that shaves off 1% of global GDP. The Indian government defended itself from the USTR's investigation, arguing that the levy was not discriminatory. Violation of "international tax principles" The USTR said that the Equalisation Levy is a violation of international tax principles. First, the taxes are ambiguously defined without guidance to clarify applicability, and so the principle of certainty is violated. Second, the levy imposes a corporate tax on companies that don't have a physical presence in India, which the report says is something tax principles recommend against. The third violation, USTR said, was taxing revenue. "This is inconsistent with the international tax principle…

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I cover the digital content ecosystem and telecom for MediaNama.

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