Digital Service Taxes: A Long-Standing Irritant in International Trade
WASHINGTON: President Donald Trump has signed a memorandum to impose tariffs on countries that levy digital service taxes on US technology companies, a White House official said.
Why the Move?
President Trump is directing his administration to consider responsive actions like tariffs "to combat the digital service taxes (DSTs), fines, practices, and policies that foreign governments levy on American companies." According to an official, "President Trump will not allow foreign governments to appropriate America’s tax base for their own benefit."
A History of Disputes
Digital service taxes targeting US tech giants like Google, Facebook, Apple, and Amazon have been a source of trade disputes for years. Britain, France, Italy, Spain, Turkey, India, Austria, and Canada have imposed these taxes, levied on revenues earned from digital services sold within their borders.
Trump’s Previous Actions
During his first term, the US Trade Representative’s (USTR) office found these digital service taxes to discriminate against US companies and readied retaliatory tariffs. In 2021, President Joe Biden’s trade chief, Katherine Tai, announced 25% tariffs on over $2 billion worth of imports from six countries, but immediately suspended them to allow negotiations on a global tax deal to continue.
The Global Tax Deal
Those negotiations led to a 15% global corporate minimum tax, which the US Congress never ratified. Talks on a second component, meant to create an alternative to the digital taxes, have largely ground to a halt with no agreement.
Trump’s First Day in Office
On his first day in office, Trump effectively pulled the US out of the global tax arrangement with nearly 140 countries, declaring that the 15% global minimum tax has "no force or effect in the US" and ordering the US treasury to prepare options for "protective measures."
Consequences of the New Order
A new Trump order could allow USTR’s retaliatory duties to be reactivated. They were designed to offset the amount of digital service taxes collected. In 2021, USTR said it would impose 25% tariffs on about $887 million worth of goods from Britain, including clothing, footwear, and cosmetics, and on about $386 million worth of goods from Italy, including clothing, handbags, and optical lenses.
Frequently Asked Questions
Q: What is the purpose of the new order?
A: The order aims to combat digital service taxes (DSTs) and prevent foreign governments from appropriating America’s tax base for their own benefit.
Q: Which countries have imposed digital service taxes on US tech giants?
A: Britain, France, Italy, Spain, Turkey, India, Austria, and Canada have imposed these taxes.
Q: What is the impact of these taxes on US companies?
A: These non-reciprocal taxes cost America’s firms over $2 billion per year.
Q: What is the global corporate minimum tax?
A: The 15% global corporate minimum tax was agreed upon in global tax negotiations, but the US Congress never ratified it.