Congressmen Ron Estes (R-KS) and Dan Kildee (D-Mich.) recently introduced a resolution expressing congressional opposition to efforts by foreign countries to impose digital services taxes (DSTs) on American businesses.
This resolution urges foreign countries to abandon efforts to impose DSTs and calls for fair and free trade between the U.S. and other countries.
Members of Congress should co-sponsor and support this resolution.
DSTs overwhelmingly target innovative American businesses and their implementation threatens jobs and the U.S. tax base. In many cases, this represents a cash grab by foreign governments seeking to cover their budget shortfalls or increase spending.
These taxes have been adopted or are being considered by the European Union, India, Indonesia, the United Kingdom, the Czech Republic, Spain, Austria, Turkey, Italy, and Brazil. They are clearly discriminatory as there is no comparable domestic digital industry in any of these countries. As a result, the tax burden is almost exclusively on American businesses.
Businesses are typically taxed on their income, not sales. This is done to ensure that taxes are paid on actual profit and allows for deducting ordinary, necessary expenses like wages, employee benefits, capital expenditures, and cost of goods sold.
However, DSTs differ in that they are imposed on the revenue produced by search energies, social media services, and online marketplaces. They hit companies regardless of how much income they have and are also imposed in addition to existing income taxes, leading to double taxation on businesses.
DSTs will ultimately hurt consumers and workers as the costs are passed down in the form of higher costs. This will fall particularly on third party suppliers and sellers that do business with large tech companies.
DSTs could also lead to a trade war where countries impose escalating tariffs and other trade barriers on each other, threatening jobs and businesses in both countries.
Fortunately, the Trump administration has already taken action to hold foreign countries accountable. Earlier this year, United States Trade Representative Robert Lighthizer initiated Section 301 investigations into proposed DSTs in order to protect American businesses and workers against foreign taxation.
In addition, Lighthizer last year launched an investigation into France’s DST finding that it unfairly discriminates against U.S. companies.
These steps should be applauded, but the administration and Congress should also continue efforts to protect American businesses and jobs.
The resolution introduced by Reps. Estes and Kildee builds on this work by urging foreign countries to reject the effort to impose DSTs that disproportionately impact American businesses, threatening jobs and innovation. Lawmakers can assist this effort by cosponsoring and supporting the resolution.