USTR launches investigations into countries’ digital taxes

The Office of the U.S. Trade Representative (USTR) on Tuesday announced that it is opening investigations into digital services taxes that have been adopted or are under consideration in a host of trading partners to determine whether they are discriminatory and burden U.S. commerce.

The investigations, which will take place under Section 301 of the Trade Act of 1974, will examine taxes that have been adopted in Austria, India, Indonesia, Italy and Turkey and that are under consideration in Brazil, the Czech Republic, the European Union, Spain and the United Kingdom. Findings that the taxes are discriminatory and burdensome could result in the U.S. imposing tariffs. 

USTR said in a notice in the Federal Register that the investigations will initially focus on concerns that digital services taxes are discriminatory against U.S. companies, retroactive and potentially unreasonable tax policy. The agency said that the taxes may diverge from U.S. and international tax norms, such as taxing revenue rather than income and having a “purpose of penalizing particular technology companies for their commercial success.”

“President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” USTR Robert Lighthizer said in a statement. “We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”

Many countries have been adopting or considering digital services taxes in an effort to collect revenue from large tech companies that have a lot of users in their jurisdictions but pay little in taxes there.

U.S. policymakers on both sides of the aisle, as well as major tech companies such as Facebook, Amazon and Google, have raised concerns about other countries’ efforts, arguing that they unfairly target American businesses. U.S. policymakers and industry groups argue that countries should not take unilateral action to impose a tax and instead should address tax issues arising from the digitalization of the economy through multilateral efforts spearheaded by the Organization of Economic Cooperation and Development (OECD).

In December, USTR determined that a digital tax adopted by France discriminates against U.S. companies, and proposed tariffs of up to 100 percent on $2.4 billion of French products. The following month, the U.S. and France reached an agreement under which France has paused the tax and the U.S. is holding off on imposing tariffs while the OECD talks are ongoing.

USTR is soliciting public comments about its new investigations. It is not scheduling a public hearing at this time because of uncertainties around coronavirus-related restrictions.

The Information Technology Industry Council, a tech trade association, said it backs USTR’s investigations, saying that a growing number of countries are proposing unilateral digital taxes. 

“We urge the United States to pursue these 301 investigations in a spirit of international cooperation and with a view to advancing constructive engagement in the global negotiations on digital taxation,” the group’s president and CEO, Jason Oxman, said. “We also again call on countries that have enacted or are considering unilateral actions to withdraw individual measures and recommit to the ongoing, multilateral OECD process.”

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and ranking member Ron Wyden (D-Ore.) also said they support the investigations.

“The United States Trade Representative is appropriately examining digital services taxes that have been adopted or are being considered by U.S. trading partners,” Grassley and Wyden said in a joint statement. “As we have previously stated, these digital services taxes unfairly target and discriminate against U.S. companies. Actions taken by Organisation for Economic Co-operation and Development (OECD) member states to enact digital services taxes are contrary to the organization’s goals and are counter to the OECD process. We support USTR’s use of the Section 301 investigation process to examine these discriminatory unilateral measures.”

-updated at 3:42 p.m.