US threatens tariffs over UK digital services tax

The US is considering taking action against a number of countries including the UK due to use of digital services taxes which primarily hit giant multinationals such as Amazon and Google

The United States Trade Representative (USTR) has announced a series of hearings in the next steps in its Section 301 investigations of digital service taxes (DSTs) adopted or under consideration by 10 US trading partners. It is also threatening to levy tariffs of up to 25% on certain British imports in retaliation.

In January, USTR found that the DSTs adopted by Austria, India, Italy, Spain, Turkey, and the UK were subject to action under Section 301 because they discriminated against US digital companies, were inconsistent with principles of international taxation, and burdened US companies. 

USTR is proceeding with the public notice and comment process on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations.

 The US is critical of the UK’s digital services tax that applies a 2% tax on the revenues of certain search engines, social media platforms and online marketplaces. The UK’s DST applies only to companies with digital services revenues exceeding £500m and UK digital services revenues exceeding £25m.

If agreement is not reached, USTR proposes to impose additional tariffs of up to 25% on an aggregate level of trade that would collect duties on goods of the UK in the range of the amount of the DST that the UK is expected to collect from US companies. Initial estimates indicate that the value of the DST payable by US-based company groups to the UK will be up to approximately $325m (£235m) per year.

‘The United States is committed to working with its trading partners to resolve its concerns with digital services taxes, and to addressing broader issues of international taxation,’ said Ambassador Katherine Tai. ‘The United States remains committed to reaching an international consensus through the OECD process on international tax issues. However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs.’

Commenting on the latest development, the Chartered Institute of Taxation's director of public policy, John Cullinane, said: ‘The UK government always said that its unilateral digital services tax would be withdrawn if an acceptable multilateral deal for taxing multinationals in the digital economy could be reached through the OECD. Recent signals from the US and others involved in those negotiations have generally been positive. This latest news - although apparently ‘just process’ - is a reminder that we are not out of the woods until a deal is actually made.’

The remaining four jurisdictions – Brazil, the Czech Republic, the European Union, and Indonesia – have not adopted or not implemented the DSTs under consideration when the investigations were initiated. Accordingly, USTR is terminating these four investigations without further proceedings. If any of these jurisdictions proceeds to adopt or implement a DST, USTR may initiate new investigations.  

The deadline for written comment on the proposals is 30 April 2021.

Proposed Action in Section 301 Investigation of the United Kingdom’s Digital Services Tax


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