The European Union recently announced that it will be imposing a digital services tax (DST) in the bloc’s long-term budget under a new label of a “digital levy”.
The announcement was revealed this week by EU Budget Commissioner Johannes Hahn, who said the DST along with several other new taxes will be implemented to help Europe cover the cost of its massive government spending, effectively trying to make the United States pay for Europe’s COVID relief in addition to our own. Digital services taxes are discriminatory taxes that unfairly target large American technology companies that do business abroad and transfer American wealth to foreign governments.
The Trump Administration had opened an investigation into the European Union’s plans to implement a DST last year, but President Biden’s U.S. Trade Representative Katherine Tai ended the investigation shortly after she was appointed as trade chief in March. All other investigations into similar digital taxes concluded that they are discriminatory. In place of the investigation, the Biden Administration entered into negotiations at the Organization for Economic Cooperation and Development (OECD) that they claimed could eliminate DSTs from other countries while implementing a global minimum corporate tax rate instead.
The United States agreed to this global minimum tax––which would ban countries around the world from lowering their corporate tax rates below 15%––with no enforcement mechanism set in place to ensure that DSTs would not arise. Sure enough, Europe appears to already be reneging on their pledge to eliminate their digital tax plans in return for a global tax agreement. In a further attempt at obfuscation, European officials changed the term “digital tax” to their new term “digital levy” in order to argue that their DST is not actually a violation of the global agreement.
Brussels isn’t the only trading partner implementing DSTs now that the U.S. is wrapped up in the OECD’s global tax agreement. Tanzania also recently decided to implement a DST of their own, which will hurt U.S. companies operating in the African country. The dominoes certainly won’t end with Europe and Tanzania; more digital services taxes are likely to be crafted in countries around the world as American jobs and wealth are shipped abroad unimpeded by the Biden Administration.
It was a tremendous mistake for President Biden to enter into the destructive global minimum tax agreement that harms Americans without an enforceable method of preventing digital services taxes from arising or any clear benefit to the United States. The Biden Administration and Congress should reject the global tax agreement and OECD deal and renew their fight against DSTs to ensure that this mistake does not endure.