US Opens Trade Probe Into Digital Taxes That Harm US Firms

June 2, 2020 Updated: June 2, 2020

WASHINGTON—The U.S. Trade Representative’s office announced on June 2 it was launching investigations into digital services taxes that have been implemented or are being considered by a number of U.S. trading partners, including the European Union.

The trade agency’s move could lead to new trade sanctions.

“President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” U.S. Trade Representative (USTR) Robert Lighthizer said in a statement. “We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”

The USTR will initiate a Section 301 investigation on several countries and regions that unilaterally implemented or are considering implementing digital services taxes, including Austria, Brazil, Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom. The USTR stated it has requested consultations with these governments.

The Organisation for Economic Co-operation and Development (OECD) is in the midst of negotiating amendments to international tax laws to cover digital commerce. The negotiations were expected to produce an agreement by October. However, the COVID-19 pandemic has slowed down the negotiations.

Several European countries are considering taxes to boost revenue from the local businesses of large companies including Google and Facebook.

Paris offered in January to suspend its plans to implement digital taxes in France until the end of the year.

In May, however, French Finance Minister Bruno Le Maire said the French government would go ahead with digital taxes this year whether or not there is progress toward an international deal on a levy.

“Never has a digital tax been more legitimate and more necessary,” Le Maire told reporters on May 14.

“In any case, France will apply as it has always indicated a tax on digital giants in 2020 either in an international form if there is a deal or in a national form if there is no deal,” he added.

The USTR said the investigation would initially focus on whether the taxes discriminate against U.S. companies, are unfairly retroactive, and “possibly unreasonable” in that they diverge from international norms.

“These departures may include: extraterritoriality; taxing revenue not income; and a purpose of penalizing particular technology companies for their commercial success,” the USTR said in the statement.

The Information Technology and Innovation Foundation (ITIF), a U.S. think tank, applauded USTR’s decision.

“The growing number of countries that are unilaterally enacting digital sales taxes are chipping away one of the cornerstones of global commerce,” ITIF said in a statement.

These taxes target revenues instead of profits, and hence impose crippling costs on firms that have growing sales but small profits, according to ITIF.

“Foreign digital sales taxes are narrowly written to apply to only the largest internet companies, most of which are American. They largely spare domestic companies in the countries that implement them even those engaged in the same activities.”

The EU has long pushed to make large tech companies doing business over the internet pay tax where they sell their services, rather than in tax havens. EU politicians want to see a company like Google pay more tax in the European countries where it makes money, preferably at a uniform rate.

Frustrated with the lack of global progress because of opposition from the United States where most tech giants are based, some countries such as France started to introduce their own digital tax in 2019. Italy, Britain, and Spain have also either already introduced their own digital taxes or plan to do so.

USTR’s decision came after the U.S. Commerce Department announced on June 2 it would investigate whether current quantities or circumstances of vanadium imports violate U.S. national security.

Vanadium is a metal used in the production of metal alloys and as a catalyst for chemicals in various industries.

“Vanadium is utilized in our national defense and critical infrastructure, and is integral to certain aerospace applications,” said U.S. Secretary of Commerce Wilbur Ross in a statement.

Reuters contributed to this report.

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