India’s 2 pc digital services tax on e-commerce supply shows favoritism against US companies and is incompatible with international tax principles, according to a US Trade Representative (USTR) investigation.

The finding leads to potential retaliatory tariffs but the US Trade Representative did not immediately specify actions to counter such taxes. Their investigation said the Indian levy discriminates against American companies, unreasonably contravenes international tax principles, and burdens or restricts US commerce.

The latest report of the office of the USTR said “our investigation indicates that India’s DST discriminates against US digital services companies. The result is that US ‘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 report said.

It observed that India’s digital services tax (DST) is discriminatory on its face, as the law explicitly exempts Indian companies, while targeting non-Indian firms.

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