Termination of Action in the Digital Services Tax Investigation of India and Further Monitoring

Issuing agencies

Abstract

On October 8, 2021, India joined the United States and 134 other jurisdictions participating in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting in reaching a political agreement on a two-pillar solution to address tax challenges arising from the digitalization of the world economy. As part of Pillar 1, all parties agreed to remove existing Digital Services Taxes (DSTs) and other relevant similar measures, and to coordinate the withdrawal of these taxes. On November 24, 2021, India and the United States issued statements describing a transitional approach to India's DST prior to entry into force of Pillar 1. These statements reflect a political agreement that, in defined circumstances, the DST liability that U.S. companies accrue in India during the interim period will be creditable against future taxes accrued under Pillar 1 of the OECD agreement. Based on the commitment of India to remove its DST pursuant to Pillar 1 and on India's political agreement to this transitional approach prior to Pillar 1's entry into force, the U.S. Trade Representative has determined to terminate the section 301 action taken in the investigation of India's DST. In coordination with the U.S. Department of the Treasury (Treasury), USTR will monitor implementation of the removal of India's DST as provided for under Pillar 1 and the transitional approach agreed to by India.