On June 2, 2021, the U.S. Trade Representative ("USTR") announced the imposition - and immediate 180-day suspension - of 25% tariffs on goods from six countries pursuant to findings in the Section 301 of the Trade Act of 1974 investigations ("Section 301 investigations") into digital services tax ("DST") regimes.1

The affected countries are Austria, India, Italy, Spain, Turkey, and the United Kingdom. Per a USTR press release, the tariff actions are suspended until November 29, 2021 to provide additional time to complete the ongoing multilateral negotiations on international taxation at the Organisation for Economic Co-operation and Development and in the G20 process.2 This is not the first time in these negotiations that this tactic was used: the USTR previously imposed, and immediately suspended, 25% tariffs on French goods on July 10, 2020 in response to France's DST.3

Depending on the eventual outcome of the negotiations, the tariff actions have the potential to strain relationships with U.S. trade partners, including close allies like France and the U.K.

Digital Services Taxes

A "digital services tax" is used to tax large multinational technology companies (e.g., Amazon, Facebook, Google) based on their digital, rather than physical, presence. In contrast to established international taxation norms that generally require a physical nexus to the country imposing the tax, DST regimes tax online economic activity that occurs within a country's borders, even in the absence of any physical presence in the country by a particular company. These taxes disproportionately affect U.S. multinational technology companies due to the outsized role these companies play in the digital economy.

DSTs vary between the implementing countries, with notable differences in the taxable activity, revenue thresholds, and tax rate. See the below table summarizing the DSTs in the countries subject to the suspended tariff actions.

Footnotes

1 Notice of Action in the Section 301 Investigation of Austria's Digital Services Tax, 86 Fed. Reg. 30,361 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11856.pdf; Notice of Action in the Section 301 Investigation of India's Digital Services Tax, 86 Fed. Reg. 30,356 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11858.pdf; Notice of Action in the Section 301 Investigation of Italy's Digital Services Tax, 86 Fed. Reg. 30,350 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11859.pdf; Notice of Action in the Section 301 Investigation of Spain's Digital Services Tax, 86 Fed. Reg. 30,358 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11863.pdf; Notice of Action in the Section 301 Investigation of Turkey's Digital Services Tax, 86 Fed. Reg. 30,353 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11861.pdf ; Notice of Action in the Section 301 Investigation of the United Kingdom's Digital Services Tax, 86 Fed. Reg. 30,364 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11862.pdf.

2 USTR Announces, and Immediately Suspends, Tariffs in Section 301 Digital Services Taxes, Investigations, Press Release, United States Trade Representative (June 2, 2021), available at https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/june/ustr-announces-and-immediately-suspends-tariffs-section-301-digital-services-taxes-investigations.

3 Notice of Action in the Section 301 Investigation of France's Digital Services Tax, 85 Fed. Reg. 43,292 (July 16, 2020), available at https://ustr.gov/sites/default/files/enforcement/301Investigations/France_Digital_Services_Tax_Notice_July_2020.pdf.

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