The US Trade Representative will decide whether such taxes are discriminatory towards US companies, in a move similar to the stance it took against France in 2019.
Background: Initiatives to tax digital services have been ongoing in several countries since 2018, as governments look to protect tax revenues. This reflects the growing volume of online transactions, which often happens at the detriment of physical transactions as consumers shift towards e-commerce, thereby making transactions with companies often based in other countries. Initiatives for an international agreement, such as the one currently led by the OECD, are seeing slow progress amid contrasting interests, mainly due to the US trying to water down proposals in order to protect the interest of the country’s tech companies. In 2019, the US went as far as taking action against France’s digital tax, which resulted in the country delaying the implementation of the new regime.
The battle extends to nine more territories: On 2 June 2020, the Office of the US Trade Representative (USTR) announced the beginning of investigations that have been adopted or are being considered by nine countries (Austria, Brazil, Czech Republic, India, Indonesia, Italy, Spain, Turkey, UK). On top of those, the list also includes the EU, despite the current absence of an EU proposal for a digital tax, because the EC recently announced it will draft a new proposal as part of its recovery plan from COVID-19. The investigation mirrors the one taken against France, in that the USTR could propose retaliatory tariffs and restrictions on products and services from these countries if it concludes that the tax is discriminatory and unfair towards US companies.
How it could end: Perhaps unsurprisingly, the investigation into France’s tax concluded that it unfairly discriminated against US companies. Given how similar to one another the digital tax initiatives are, and the motives of the USTR’s action, it is likely that these investigations will reach the same conclusion. This could delay the introduction of the digital tax in each of these countries, although it is worth noting that most of these countries appear determined to go ahead with some form of tax on digital services, despite the opposition of the US. The USTR is accepting submissions on its investigation until 15 July 2020.
