Tax experts said that while direct trade negotiations between India and US could have undertones of reaching a common ground on the 2% levy on digital transactions that India imposed from April 1, 2020, the real push will come from discussions in the Organisation for Economic Co-operation and Development (OECD) provided the US re-engages, after pulling out earlier this year.
“The US will continue its protectionist stance when it comes to targeted unilateral taxes impacting the large US based internet behemoths… international negotiations will have to ensure that there is no double taxation as it will otherwise force operators to pass on costs,” said Rohinton Sidhwa, tax partner at Deloitte India.
US President-elect Joe Biden has favoured taxing tech giants during his campaigns, indicating a stance to tax substantial profits in the US.
In case of unilateral levies such as India, the Biden regime is not expected to revert with hostile tariffs but a push back is expected through negotiations, experts noted.
“The Biden-projected domestic tax increases may perhaps alleviate the need for a very hard stand in the ongoing multilateral process,” Sidhwa added.
“Unless a consensus is reached in OECD, unilateral levies would increase triggering trade tensions,” Divakar Vijayasarthy, managing partner at DVS Advisors cautioned.
The Trump administration suspended international tax negotiations on digital transactions with OECD countries in June this year, and had warned of retaliation if European countries imposed new taxes on American tech firms such as Amazon, Facebook and Google.
“Finding a consensus based solution for digital taxation is the preferred solution and very little can be achieved without US participation. If the new administration reconsiders this position, it could change a lot for taxation of digital services including India’s EL,” said Ajay Rotti, partner at Dhruva Advisors.
The US had launched a Section 301 probe on EU, India, UK and Brazil in June to determine whether the levy discriminates against American e-commerce companies, however India has responded strongly to the allegations saying it was taxing all foreign ecommerce companies operating in India, not just US companies.
However, some said that the US election results will not have an impact on equalization levy on e-commerce transactions since the tax has not been unilaterally imposed on some companies or a particular country.
“US elections don’t have any impact on the sovereign right of a country to levy tax,” said Rajendra Nayak, tax partner, international tax at EY India.