Termination of Action in the Digital Services Tax Investigation of India and Further Monitoring, 68526-68528 [2021-26198]

Agencies

• Office of the United States Trade Representative

[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

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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

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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