We are pleased to present the latest edition of Tax Street – our newsletter that covers all the key developments and updates in the realm of taxation in India and across the globe for the month of July 2020.

  • The 'Focus Point' covers aspects and impacts of Section 301 of the US Trade Act, 1974.
  • Under the 'From the Judiciary' section, we provide in brief, the key rulings on important cases, and our take on the same.
  • Our 'Tax Talk' provides key updates on the important tax-related news from India and across the globe.
  • Under 'Compliance Calendar', we list down the important due dates with regard to direct tax, transfer pricing and indirect tax in the month.

Focus Point

Deep dive into the investigation under Section 301 of US Trade Act 1974

The US retaliation on the global digital tax developments has become a subject of intense scrutiny. After the trade war with China and France, the United States has now initiated an investigation on various countries for adopting the OECD recommended digital taxation. Amongst various nations, India, Australia, and the European Union are at the forefront. This investigation has not only led to unrest in global trade relations but has also raised serious doubts on the international trade rules and principles. In the ensuing paragraphs, we have attempted to decode the complex aspects of Section 301.

Deciphering Section 301

Section 301 of the Trade Act, 1974 grants the US Tax Representatives (USTR) a right to investigate and take action against the foreign acts, policies or practices that violate US rights under trade agreements, or when these actions may not violate any trade agreements but are considered 'unreasonable or discriminatory and that burden or restrict US commerce.'

The USTR can self-initiate a case or act upon cases petitioned under Section 301. The Section 301 investigations are conducted by a subordinate, staff-level body of the USTR-led, interagency Trade Policy Staff Committee (TPSC).

The Section 301 Committee reviews the relevant petitions, conducts public hearings, and makes recommendations to the TPSC regarding potential actions under Section 301. The final decision from USTR is based on the recommendations from the TPSC.

Where the findings of the investigation are positive, the US under the Trade Act can impose unilateral actions, including any permutation and combination of the following:

  • Imposition of import duties and other import restrictions, with a preference for import duties;
  • Imposition of restrictions on services, including access authorization;
  • Suspension of unilateral trade preferences;
  • Entering into binding agreements with foreign countries to either eliminate the conduct in question or compensate the United States with satisfactory trade benefits.

Once the USTR initiates a Section 301 investigation, it seeks to negotiate a settlement with the concerned foreign country through either compensation or elimination of the particular barrier or practice.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.