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

Published date02 December 2021
Citation86 FR 68526
Record Number2021-26198
SectionNotices
CourtTrade Representative Office Of The United States
Federal Register, Volume 86 Issue 229 (Thursday, December 2, 2021)
[Federal Register Volume 86, Number 229 (Thursday, December 2, 2021)]
                [Notices]
                [Pages 68526-68528]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2021-26198]
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                OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
                Termination of Action in the Digital Services Tax Investigation
                of India and Further Monitoring
                AGENCY: Office of the United States Trade Representative (USTR).
                ACTION: Notice.
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                SUMMARY: 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
                [[Page 68527]]
                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.
                DATES: The additional duties on products of India are terminated as of
                November 28, 2021.
                FOR FURTHER INFORMATION CONTACT: For questions concerning this notice,
                please contact Benjamin Allen, Thomas Au, Patrick Childress, or Kate
                Hadley, Assistant General Counsels at (202) 395-9439, (202) 395-0380,
                (202) 395-9531, and (202) 395-3911, respectively, Robert Tanner,
                Director, Services and Investment at (202) 395-6125, or Brendan Lynch,
                Deputy Assistant U.S. Trade Representative for South and Central Asian
                Affairs at (202) 395-2851.
                SUPPLEMENTARY INFORMATION:
                I. Proceedings in the Investigation
                 This investigation is addressed to India's 2020 ``equalisation
                levy'', which is referred to throughout the investigation as India's
                DST. See, e.g., 86 FR 30356 (June 7, 2021) and the India DST report,
                published at https://ustr.gov/sites/default/files/enforcement/301Investigations/Report%20on%20India%E2%80%99s%20Digital%20Services%20Tax.pdf. For
                further background on the proceedings in the section 301 investigation
                of India's DST, please see prior notices including: 85 FR 34709 (June
                5, 2020); 86 FR 2478 (January 12, 2021); 86 FR 16824 (March 31, 2021);
                and 86 FR 30356 (June 7, 2021).
                 On June 2, 2021, the U.S. Trade Representative determined to take
                action in the form of additional duties on certain products of India
                and to immediately suspend those additional duties for up to 180 days.
                86 FR 30356 (June 7, 2021).
                II. OECD/G20 Negotiations
                 One-hundred forty-one jurisdictions are engaged in international
                tax negotiations under the OECD/G20 Inclusive Framework on Base Erosion
                and Profit Shifting. On October 8, 2021, India joined the United States
                and 134 other participants in reaching political agreement on a
                Statement on a Two-Pillar Solution to Address the Tax Challenges
                Arising from the Digitalisation of the Economy. OECD/G20 Base Erosion
                and Profit Shifting Project, Statement on a Two-Pillar Solution to
                Address the Tax Challenges Arising from the Digitalisation of the
                Economy (Oct. 8, 2021) at https://www.oecd.org/tax/beps/statement-on-a-two-pillar-solution-to-address-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2021.pdf (the OECD/G20 Two-Pillar
                Solution). The statement provides that Pillar 1 will be implemented
                through a multilateral convention. With respect to DSTs, the statement
                provides:
                 The Multilateral Convention (MLC) will require all parties to
                remove all Digital Services Taxes and other relevant similar
                measures with respect to all companies, and to commit not to
                introduce such measures in the future. No newly enacted Digital
                Services Taxes or other relevant similar measures will be imposed on
                any company from 8 October 2021 and until the earlier of 31 December
                2023 or the coming into force of the MLC. The modality for the
                removal of existing Digital Services Taxes and other relevant
                similar measures will be appropriately coordinated.
                III. India's Agreement
                 On November 24, 2021, The Ministry of Finance of the Government of
                India and Treasury issued statements reflecting a political agreement
                on a transitional approach to India's DST while implementing Pillar 1.
                India and USA agree on a transitional approach on Equalisation Levy
                2020, Ministry of Fin. of the Gov't of India (Nov. 24, 2021), https://pib.gov.in/PressReleasePage.aspx?PRID=1774692; Treasury Announces
                Agreement on the Transition from Existing Indian Equalization Levy to
                New Multilateral Solution Agreed by the OECD-G20 Inclusive Framework,
                U.S. Dep't of the Treas. (Nov. 24, 2021), https://home.treasury.gov/news/press-releases/jy0504. Under this agreement and in defined
                circumstances, the liability from India's DST 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. The period
                during which the credit accrues will be from April 1, 2022, until
                either the implementation of Pillar 1 or March 31, 2024, whichever is
                earlier. In return, the United States commits to terminate the existing
                section 301 trade action on goods of India, and not to impose further
                trade actions against India with respect to its existing DST until the
                earlier of the date the Pillar 1 multilateral convention comes into
                force or March 31, 2024. Id.
                IV. Termination of Action
                 Section 307 of the Trade Act of 1974, as amended (Trade Act) (19
                U.S.C. 2417), provides that ``[t]he Trade Representative may modify or
                terminate any action, subject to the specific direction, if any, of the
                President with respect to such action, that is being taken under
                section [301] of this title if . . . such action is being taken under
                section [301(b)] of this title and is no longer appropriate.'' The U.S.
                Trade Representative has found that the political agreement of India to
                the OECD/G20 Two-Pillar Solution, which provides for the removal of
                DSTs upon entry into force of Pillar 1, and the transitional approach
                agreed to by India provide a satisfactory resolution of the matters
                covered by the section 301 investigation of India's DST. Accordingly,
                pursuant to section 307 of the Trade Act, the U.S. Trade Representative
                has determined that the suspended trade action in this investigation is
                no longer appropriate and that the action should be terminated.
                 The U.S. Trade Representative's determination was made in
                consultation with Treasury and considers the advice of the interagency
                Section 301 Committee, consultations with representatives of the
                domestic industry concerned, and public comments and advisory committee
                advice received during the investigations.
                 In order to implement the termination of the section 301 action in
                the investigation of India's DST, subchapter III of chapter 99 of the
                Harmonized Tariff Schedule of the United States (HTSUS) is modified by
                the Annex to this notice.
                V. Ongoing Monitoring
                 Section 306(a) of the Trade Act (19 U.S.C. 2416(a)) provides that
                ``[t]he Trade Representative shall monitor the implementation of each
                measure undertaken, or agreement that is entered into, by a foreign
                country to provide a satisfactory resolution of a matter subject to
                investigation. . . .'' Section 306(b) (19 U.S.C. 2416(b)) provides that
                ``[i]f, on the basis of the monitoring
                [[Page 68528]]
                carried out under subsection (a), the Trade Representative considers
                that a foreign country is not satisfactorily implementing a measure or
                agreement referred to in subsection (a), the Trade Representative shall
                determine what further action the Trade Representative shall take under
                section [301(a)].'' Pursuant to section 306(a) of the Trade Act, the
                U.S. Trade Representative, in coordination with Treasury, will monitor
                the implementation of the political agreement on an OECD/G20 Two-Pillar
                Solution as pertaining to DSTs, India's agreement as reflected in the
                November 24 statements, and associated measures. Pursuant to section
                306(b) of the Trade Act, if the U.S. Trade Representative, in
                consultation with Treasury, subsequently considers that India is not
                satisfactorily implementing these political agreements or associated
                measures, then the U.S. Trade Representative will consider further
                action under section 301.
                Annex
                 The U.S. Trade Representative has decided to terminate the
                additional duties under heading 9903.90.03 of the HTSUS on articles the
                product of India, as provided for in U.S. notes 24(a) and 24(b) to
                subchapter III of chapter 99 of the HTSUS. The termination of these
                additional duties is effective on November 28, 2021.
                 In accordance with this determination, the U.S. Trade
                Representative has determined to modify the HTSUS by: (1) Deleting U.S.
                notes 24(a) and 24(b) to subchapter III of chapter 99 of the HTSUS; and
                (2) by deleting HTSUS heading 9903.90.03. The modifications of the
                HTSUS are effective on November 28, 2021. Any provisions of previous
                notices issued in this investigation that are inconsistent with this
                notice are superseded to the extent of such inconsistency.
                Greta Peisch,
                General Counsel, Office of the United States Trade Representative.
                [FR Doc. 2021-26198 Filed 12-1-21; 8:45 am]
                BILLING CODE 3290-F2-P
                

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