U.S. Trade Representative Announces Section 301 Investigation of Digital Services Taxes in the European Union and Nine Additional Countries

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Authors: Nicolas Guzman , Douglas J. Heffner , Kathleen M. Murphy , Randy Rucker , James L. Sawyer , Richard Ferrin , Mollie D. Sitkowski , Carrie Bethea Connolly

The U.S. Trade Representative (USTR) has initiated a Section 301 investigation into Digital Services Taxes (DSTs) proposed or enacted by the European Union (consisting of 27 member states), Austria, Brazil, the Czech Republic, India, Indonesia, Italy, Spain, Turkey and the United Kingdom. The investigation follows an earlier Section 301 action against a DST enacted by the French government.

Pursuant to section 304 of the Trade Act, USTR must determine whether the act, policy, or practice under investigation is actionable under Section 301. The investigation will determine whether the DSTs are retroactive or extraterritorial, discriminate against U.S. companies, tax revenue rather than income, or are intended to penalize particular technology companies due to their commercial success.

The interagency Section 301 Committee is seeking public comments on the proposed duties. Comments must be submitted by July 15, 2020. Due to the COVID-19 pandemic, USTR has not scheduled a hearing at this time, but may choose to do so at a later date in a separate announcement.

With regard to the proposed duties, USTR invites comments with respect to any aspect of the proposed action, including:

Concerns with one or more of the DSTs adopted or under consideration by the jurisdictions covered in these investigations.
Whether one or more of the covered DSTs is unreasonable or discriminatory.
The extent to which one or more of the covered DSTs burdens or restricts U.S. commerce.
Whether one or more of the covered DSTs is inconsistent with obligations under the WTO Agreement or any other international agreement.
The determinations required under section 304 of the Trade Act, including what action, if any, should be taken.

The proposed foreign DSTs included in the scope of the investigation include the following measures:

Austria: 5% tax on revenues from online advertising services for companies with at least EUR 750 million in annual global revenues for all services and EUR 25 million in Austrian revenues for covered digital services (effective January 1, 2020)
Brazil: Tax on gross revenue derived from digital services provided by large technology companies (proposed)
Czech Republic: 7% tax on revenues from targeted advertising and digital interface services for companies with at least EUR 750 million in annual global revenues for all services and CZK 50 million in Czech revenues for covered digital services (proposed)
European Union: 3% tax on revenues from targeted advertising and digital interface services for companies with at least EUR 750 million in global revenues from covered digital services and at least EUR 50 million in EU-wide revenues for covered digital services
India: 2% tax on online sales of goods and services to (or targeted toward) persons in India, applicable to non-resident companies with annual revenues of at least Rs. 20 million (effective April 1, 2020)
Indonesia: Electronic transaction tax on cross-border digital transactions (adopted but not yet in effect)
Italy: 3% tax on revenues from targeted advertising and digital interface services for companies with at least EUR 750 million in annual global revenues for all services and EUR 5.5 million in Italian revenues for covered digital services (effective January 1, 2020)
Spain: 3% tax on revenues from targeted advertising and digital interface services for companies with at least EUR 750 million in annual global revenues for all services and EUR 3 million in Spanish revenues for covered digital services (proposed)
Turkey: 7.5% tax (with authority to increase to 15%) on revenues from targeted advertising, social media and digital interface services for companies with at least EUR 750 million in global revenues from covered digital services and TL 20 million in Turkish revenues from covered digital services (effective March 1, 2020)
United Kingdom: 2% tax on revenues exceeding GBP 25 million from internet search engines, social media, and online marketplaces for companies with at least GBP 500 million in global revenues from covered digital services and at least GBP 25 million in British revenues from covered digital services (proposed; expected to take effect in 2021)