On June 2, 2020, the United States Trade Representative (USTR) announced that his office is beginning investigations [Docket No. USTR-2020-0022] into digital services taxes that have been adopted or are being considered by a number of the US’ trading partners. The investigations will be conducted under Section 301 of the Trade Act of 1974. This provision gives the USTR broad authority to investigate and respond to a foreign country’s action which may be unfair or discriminatory and negatively affect US Commerce.
An advance copy of the Federal Register notice provided details of the investigations as well as information on how members of the public can provide their views through written submissions. The Federal Register notice states that USTR is initiating investigations with respect to Digital Services Taxes (DSTs) adopted or under consideration by Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom. Over the past two years, various jurisdictions have taken under consideration or adopted taxes on revenues that certain companies generate from providing certain digital services to, or aimed at, users in those jurisdictions. Available evidence suggests the DSTs are expected to target large, U.S.-based tech companies.
The investigation initially will focus on the following concerns with DSTs: discrimination against U.S. companies; retroactivity; and possibly unreasonable tax policy. With respect to tax policy, the DSTs may diverge from norms reflected in the U.S. tax system and the international tax system in several respects. These departures may include: extraterritoriality; taxing revenue not income; and a purpose of penalizing particular technology companies for their commercial success.
Public comments must be submitted by July 15, 2020.