The US has launched an investigation into digital services taxes (DSTs) that have been adopted or are being considered by a number of its trading partners, including the UK, on the grounds that they will unfairly penalise companies like Google and Amazon
Robert Lighthizer, the US trade representative (USTR), said his office will conduct an investigation under Section 301 of the 1974 Trade Act. This provision gives the USTR broad authority to investigate and respond to a foreign country's action which may be unfair or discriminatory and negatively affect US commerce.
The USTR order stated: ‘The investigation initially will focus on the following concerns with DSTs: discrimination against US companies; retroactivity; and possibly unreasonable tax policy.
‘With respect to tax policy, the DSTs may diverge from norms reflected in the US tax system and the international tax system in several respects.
‘These departures may include: extraterritoriality; taxing revenue not income; and a purpose of penalizing particular technology companies for their commercial success.’
Lighthizer said: ‘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.’
The USTR office said 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. It argued that these DSTs are expected to target large, US-based tech companies.
As a result, its investigation will look at DSTs which are either in preparation or in use in Austria, Brazil, Czech Republic, EU, India, Indonesia, Italy, Spain, Turkey, and the UK.
At the end of last year, the US warned it might levy 100% trade tariffs on up to $2.4bn (£1.85bn) of French goods, including cheese and champagne, in response to a federal investigation which concluded that France’s DST discriminated against US companies.
Subsequently the two countries agreed to hold back on any new tariffs before the end of 2020, to allow time for continued discussions within the OECD base erosion and profit shifting (BEPS) framework on digital taxation, but the latest US action has prompted fears it could contemplate retaliatory tariffs with other countries over DSTs.
The UK’s DST came into operation from 1 April 2020. It is a 2% tax on the revenues derived from UK users of social media platforms, search engines and online marketplaces and applies to revenue earned from that date.
Any business which provides a social media platform, search engine or online marketplace to UK users needs to register to pay if it has global revenues of more than £500m in a year and UK revenues of more than £25m in a year.
A Treasury spokesperson said: ‘Our Digital Services Tax ensures that digital businesses pay tax in the UK that reflects the value they derive from UK users, and is compatible with the UK's international obligations.’
The UK, along with a number of countries, has said it introduced its own DST after frustrations at the OECD’s slow progress in developing a multilateral approach.
The Treasury said: ‘We have always been clear that our preference is for a global solution to the tax challenges posed by digitalisation and we'll continue to work with the US and other international partners to achieve that objective.’
USTR is seeking public comments in connection with its investigation, with a deadline of 15 July. USTR order