The Office of the United States Trade Representative announced the conclusion of investigations into digital taxes imposed by India, Italy, and Turkey, finding that they discriminate against U.S. companies. The administration also announced they are finalizing remaining 301 investigations into Digital Services Taxes (DST) imposed by Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the United Kingdom.
The U.S. was set to enact 25% tariffs on a range of French products yesterday in retaliation for the country’s discriminatory tax. Robert Lighthizer announced today that those duties are suspended indefinitely.
While the administration deserves praise for beginning to finalize outstanding 301 investigations, delaying retaliatory actions of France’s already-imposed DST is the wrong decision. This sends a message to foreign countries that the U.S. will not follow through on its promise to defend American companies and workers against DSTs. This inaction will only encourage other countries around the world that have already imposed or are about to impose similar discriminatory taxes.
Over the past four years, the Trump administration has consistently fought to ensure that American businesses and workers are competing with foreign countries on a level playing field. They should continue this effort by holding France and other countries accountable for unilaterally imposed DSTs.
To be clear, ATR opposes all taxes as a matter of principle. The best outcome to this dispute would be an end to all DSTs, tariffs, and other trade barriers.
However, it is important to remember that the current trade conflict was initiated by France and the European Union when they decided to unfairly tax American companies.
Back in December 2019, the USTR released an affirmative finding of discrimination of the French Digital Services Tax and issued a list of $2.4 billion worth of French goods that would be subject to an additional 25% tariff under Section 301. France agreed to not collect its tax until the end of the year if a solution can be negotiated at the OECD.
Due to the COVID-19 pandemic negotiations on digital taxation at the OECD stalled and missed a deadline in October 2020. France unliterary and without international agreement resumed the collection of its tax in December.
DSTs pose an unprecedented danger to tax competition, innovation, and economic growth. These new taxes represent a dramatic and irreversible shift for the international tax system. While they are imposed on business revenues, DSTs will ultimately end up harming consumers and workers as the costs are passed down. This will result in fewer jobs and lower wages for businesses, especially third party suppliers and sellers that rely on tech companies for their livelihoods.
There is strong, bipartisan opposition in Congress to foreign DSTs. For instance:
- Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.), as well as Ways and Means Chairman Richie Neal (D-Mass) and Ranking Member Kevin Brady (R-Texas), have all raised concerns about DSTs, noting that these unilateral taxes “adversely affect U.S. businesses and have negative economic and diplomatic effects.”
- Rep. Ron Estes (R-Kan.) and Rep. Dan Kildee (D-Mich.) have introduced a bipartisan resolution expressing congressional opposition to foreign efforts to impose DSTs on American businesses.
Lawmakers should be applauded for their strong stance against DSTs and should continue raising the alarm moving forward.
At the same time, the administration must hold foreign countries accountable. One step toward this is goal is finalizing the remaining 301 investigations including those that have been adopted or are being considered by the European Union, Indonesia, the United Kingdom, the Czech Republic, Spain, Austria, and Brazil. However, it is also imperative that the U.S. follows through on its promise to defend American workers and businesses when foreign countries impose DSTs.