Geneva, 3 Jun (D. Ravi Kanth) – The United States appears intent on triggering another tariff war by targeting countries that impose “digital services taxes” on American digital behemoths, including Google, Amazon, Facebook, Apple, and Microsoft among others.
As countries remain economically and financially devastated due to the worsening COVID-19 pandemic, the US Trade Representative (USTR), Ambassador Robert Lighthizer, has subtly warned its trading partners, including the European Union, not to impose digital services taxes under the pretext of the COVID-19 pandemic.
“The European Commission is considering a DST (digital services tax) as part of the financing package for its proposed COVID-19 recovery plan,” the USTR’s office suggested on 2 June.
In a statement issued on 2 June, the USTR Robert Lighthizer said that his office is initiating “investigations into digital services taxes that have been adopted or are being considered by a number of our trading partners”, under the Special 301 section of the US Trade Act of 1974.
The countries listed under the Special 301 investigations include Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.
Ambassador Lighthizer claimed that the Special 301 of the 1974 Trade Act “gives the USTR broad authority to investigate and respond to a foreign country’s action which may be unfair or discriminatory and negatively affects US Commerce.”
According to the USTR, “President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies.”
“We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination,” Ambassador Lighthizer said.
Interestingly, the USTR’s announcement of investigations has come six months ahead of the US Presidential elections in which the support of the GAFA (Google, Amazon, Facebook, and Apple) companies for funding is crucial for both the Congressional parties.
The Special 301 investigations could ultimately result in imposing new additional tariffs on these countries.
Significantly, the Paris-based Organization for Economic Cooperation and Development (OECD), the rich country economic club, has been conducting negotiations on a multilateral approach for taxing the digital services.
Apparently, some countries have opted to move ahead with their own digital services taxes until OECD members are able to reach a consensus.
The chair of the US Senate Finance Committee Senator Chuck Grassley (R-Iowa) and the ranking Democrat Ron Wyden (D-Or) concurred with the USTR’s decision.
“As we have previously stated, these digital services taxes unfairly target and discriminate against US companies,” they said.
In a joint statement issued on 2 June, the senators said that “actions taken by the Organization for Economic Cooperation [and Development] 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.”
According to a digital trade analyst, who asked not to be quoted, “France is not the only country which is levying a digital tax. An increasing number of countries, both within the EU and outside, are levying digital taxes based on their national laws and directives.”
“While the US is initiating an investigation under its Section 301 of the US Trade Act of 1974, national laws and directives of other countries allow this tax,” the analyst said.
“This is where the importance of the WTO (World Trade Organization) Appellate Body comes to the forefront, which the US has itself destroyed,” the analyst added.
Moreover, “while France will be able to fight this case, many developing countries may not have the legal capacity to withstand the US in the court of law. Therefore, we need the WTO to be effective and countries to decide multilaterally the need to impose digital taxes,” the expert argued.
However, the USTR claimed that “over the past two years, various jurisdictions have taken under consideration or adopted taxes on revenues that certain companies generate from providing certain digital services to, or aimed at, users in those jurisdictions.”
The USTR listed its specific concerns with each country in its Federal Register notice. The countries include:
1. Austria: In October 2019, Austria adopted a DST that applies a 5% tax to revenues from online advertising services. The law went into force on January 1, 2020. The tax applies only to companies with at least EUR 750 million in annual global revenues for all services and EUR 25 million in in-country revenues for covered digital services.
2. Brazil: Brazil is considering a legislative proposal entitled the “Contribution for Intervention in the Economic Domain” or CIDE. If adopted, CIDE would apply to the gross revenue derived from digital services provided by large technology companies.
3. The Czech Republic: The Parliament of the Czech Republic is considering a draft law that would apply a 7% DST to revenues from targeted advertising and digital interface services. The tax would apply only to companies generating EUR 750 million in annual global revenues for all services and CZK 50 million in in-country revenues for covered digital services.
4. The European Union: The European Commission is considering a DST as part of the financing package for its proposed COVID-19 recovery plan. The EU DST is based on a 2018 DST proposal that was not adopted. The 2018 EU proposal included a 3% tax on revenues from targeted advertising and digital interface services, and would have applied only to companies generating at least EUR 750 million in global revenues from covered digital services and at least EUR 50 million in EU-wide revenues for covered digital services.
5. India: In March 2020, India adopted a 2% DST. The tax applies only to non-resident companies, and covers online sales of goods and services to, or aimed at, persons in India. The tax applies only to companies with annual revenues in excess of approximately Rs. 20 million (approximately US$267,000). The tax went into effect on April 1, 2020.
6. Indonesia: Earlier this year, Indonesia adopted an electronic transaction tax that targets cross-border, digital transactions. Further implementing measures are required for the new tax to go into effect.
7. Italy: Italy has adopted a DST. The measure includes a 3% tax on revenues from targeted advertising and digital interface services. This tax applies only to companies generating at least EUR 750 million in global revenues for all services and EUR 5.5 million in country revenues for covered digital services. The tax applies as of January 1, 2020.
8. Spain: Spain is considering a draft DST. The measure would apply a 3% tax to revenues from targeted advertising and digital interface services. This tax would apply only to companies generating at least EUR 750 million in global revenues for all services and EUR 3 million in in-country revenues for covered digital services.
9. Turkey: Turkey has adopted a DST. The measure applies a 7.5% tax to revenues from targeted advertising, social media and digital interface services. The tax applies only to companies generating EUR 750 million in global revenues from covered digital services and TL 20 million in in-country revenues from covered digital services. The Turkish President has authority to increase the tax rate up to 15%. The law went into effect on 1 March 2020.
10. The United Kingdom: The United Kingdom is considering a DST proposal as part of its Finance Bill 2020. The measure would apply a 2% tax on revenues above GBP 25 million to internet search engines, social media, and online marketplaces. The tax applies only to companies generating at least GBP 500 million in global revenues from covered digital services and GBP 25 million in in-country revenues from covered digital services. The bill is in the final stages of adoption by Parliament, and if passed, payments would be due from affected companies in 2021.
Earlier, Washington had threatened France for pursuing a “digital tax regime” by proposing to slap tariffs of up to 100% against $2.4 billion of French imports in response to the French digital services tax on American tech companies.
In short, despite hundreds of billions of dollars of annual turnover by the US GAFA companies through advertisement revenue in other countries, the targeted countries must either drop digital services taxes to combat the COVID-19 economic crisis, or face retaliatory tariffs, the USTR has warned.