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US Launches Investigation into Digital Service Taxes Across the Globe

US probe digital service tax

The Trump administration has launched a series of in-depth investigations into digital service taxes (DST) being implemented in ten different jurisdictions including the UK, India and the European Union.

The US has long accused these DSTs of focusing unfairly on American tech companies like Apple, Google, Facebook and Amazon and has threatened to retaliate via the implementation of tariffs on these jurisdictions’ exports stateside.

According to Tax Foundation, the investigation will focus on “identifying discrimination against U.S. companies, retroactivity, and departures from international tax norms in the form of “extraterritoriality; taxing revenue not income; and a purpose of penalizing particular technology companies for their commercial success.”

This probe follows plans by several jurisdictions to move unilaterally in the establishment of a digital service tax with the hope that a satisfying global solution is eventually reached by the OECD.

US Trade Representative Robert Lighthizer said, “President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” adding that the country is “prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”

Furthermore, the top Democrat and Republican leaders in the Senate’s Finance Committee agree with the investigation, stating that this probe involves “appropriately examining” DSTs that “unfairly target and discriminate against U.S. companies.”

This kind of probe, known as a 301 investigation by the US Trade Representative (USTR), can last several months. In 2019, the US government launched a similar probe on France, one of the first countries to unilaterally impose a DST on tech companies, opting to delay hitting France with tariffs since both countries agreed to work with the OECD on a global solution.

Recently, India significantly expanded its DST, while Spain published a bill detailing its own DST in case the global agreement led by the OECD is all for naught. Both countries will be investigated by the USTR.

According to Bloomberg Tax, a Spanish official explained that the country’s DST “is in line with the EU proposal and initiatives already approved in other countries such as France and Italy” and “doesn’t discriminate against any company based on its nationality and will be applied objectively, based on a firm’s’ revenue and under the premise that taxes be paid wherever profits are earned.”

US probe digital service tax

Countries & Industry React to the American Digital Tax Probe

The UK responded to the US’s investigation, stating that its DST didn’t go against any of the country’s “international obligations.”

A spokesperson for the Treasury department said, “Our Digital Services Tax ensures that digital businesses pay tax in the UK that reflects the value they derive from UK users, and is compatible with the UK's international obligations.”

However, the spokesperson also clarified that the ultimate goal is for there to be a global solution on the taxation of digital companies.

"We have always been clear that our preference is for a global solution to the tax challenges posed by digitalisation and we'll continue to work with the US and other international partners to achieve that objective," the spokesperson said.

On the industry side, tech trade organization Information Technology Industry Council (ITRC) believes these 301 investigations are required and fully supports the work being carried out by the USTR.

ITRC President Jason Oxman said, “We urge the United States to pursue these 301 investigations in a spirit of international cooperation and with a view to advancing constructive engagement in the global negotiations on digital taxation.”

“We also again call on countries that have enacted or are considering unilateral actions to withdraw individual measures and recommit to the ongoing, multilateral OECD process,” he added.

Furthermore, Jordan Haas, Policy Director for the Internet Association industry trade group, agreed with this sentiment, saying that “The U.S. must continue sending a strong message to trading partners that targeted discriminatory taxes against U.S. firms are not an appropriate solution.”

Besides the UK, India, Spain and the EU, the list of countries being investigated as part of this probe include Austria, Brazil, the Czech Republic, Indonesia, Italy and Turkey.