The Office of the U.S. Trade Representative (USTR) initiated investigations pursuant to Section 301 of the Trade Act of 1974 into Digital Services Taxes (DSTs) adopted or under consideration by Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom. The investigation aims to identify whether the DSTs in these jurisdictions discriminate against U.S. companies and concerns of retroactivity and an unreasonable tax policy.
DSTs are “taxes on revenues that certain companies generate from providing certain digital services to, or aimed at, users in those jurisdictions.” According to USTR’s Federal Register notice, the countries included in these investigations are considering or have adopted taxes ranging from 2-7.5% on global revenues greater than €750 million. KPMG has published a comprehensive report on DSTs enacted or under consideration.
USTR’s announcement of these investigations follows the conclusion last year of a Section 301 investigation concerning France’s proposed 3 percent DST. That report found that the design of the tax discriminated against U.S.-based digital companies and the policy conflicted with prevailing tax principles by taxing gross revenues rather than net income. Those findings resulted in a U.S. proposal of up to 100 percent on certain French exports to the U.S. across 63 tariffs subheadings with an approximate U.S. trade value of $2.4 billion. Following the threat of tariffs and State-to-State negotiations, France delayed the collection of the tax until 2021, although liability would accrue in 2020.
Against this backdrop, the Organization of Economic Cooperation and Development (OECD) continues to negotiate a multinational agreement regarding DST under its BEPS framework. On May 12-13, OECD held virtual public consultations for the 2020 Review of Country-by-Country Reporting. While under modified working conditions due to coronavirus, OECD has stated that they will continue to work to reach a decision about key components of the solution to present at the G20/OECD Inclusive Framework on BEPS meeting scheduled for early July.
USTR will accept written comments regarding the investigations, which can be submitted through regulations.gov under docket number USTR-2020-0022 by July 15, 2020.
About Section 301 of the Trade Act of 1974
Section 301 of the Trade Act of 1974 provides the USTR with a range of authority to investigate and enforce U.S. rights under trade agreements and take action against certain foreign trade practices. It provides statutory basis for the U.S. to impose trade sanctions on foreign countries in violation of U.S. trade agreements or engage in acts that cause unjustifiable harm to U.S. commerce. Recent Section 301 investigations have included an assessment of China’s Acts, Policies and Practices Related to Technology Transfer, Intellectual Property, and Innovation and Enforcement of U.S. WTO Rights in the Large Civil Aircraft Dispute.