US Sets, Then Suspends, 25 Percent Digital Tax Tariff On Six Countries

The United States has clearly signalled its intention to respond to countries that are implementing their own digital services tax on US tech giants.

The Biden Administration and the US trade representative’s (USTR) office  have announced a 25 percent tariff on over $2bn worth of imports six countries (including the UK) on Wednesday, because of their taxes on US technology companies

However it also immediately suspended the duties to allow time for negotiations to continue.

US tariffs

The US retaliatory move was not unexpected.

In March this year, US Trade Representative Katherine Tai had warned it would implement tariffs against countries, including the UK, which have implemented digital services taxes.

The US tariff is against the UK, Italy, Spain, Turkey, India and Austria.

Katherine Tai said the tariffs had been agreed after an investigation concluded that their digital taxes discriminated against US companies.

“The United States is focused on finding a multilateral solution to a range of key issues related to international taxation, including our concerns with digital services taxes,” said Ambassador Tai.

“The United States remains committed to reaching a consensus on international tax issues through the OECD and G20 processes,” added Ambassador Tai. “Today’s actions provide time for those negotiations to continue to make progress while maintaining the option of imposing tariffs under Section 301 if warranted in the future.”

The UK’s digital tax came into force on 1 April 2020, charging 2 percent on revenues by large businesses that provide a social media service, search engine or online marketplace to UK users.

Like the digital taxes elsewhere, it targets the in-country revenues of tech giants such as Amazon, Facebook and Google.

The UK law specifically contains a provision that it is to be disapplied once an international solution has been reached.

The US meanwhile is also maintaining a more developed tariff threat against $1.3 billion (£1bn) in French imports such as champagne, cosmetics and handbags in retaliation for France’s digital tax.

In January the US suspended the French tariff to allow time for negotiations.

The US trade representative’s office has listed which imports would face the US tariffs.

For the UK, goods including clothing, overcoats, footwear and cosmetics worth $887m would be hit with the 25 percent tariff.

International negotiations

The tariffs come as finance leaders from the G7 prepare to meet in London on Friday and Saturday to discuss the state of tax negotiations.

But tax negotiations have been ongoing for over a decade now.

The Organisation for Economic Cooperation and Development (OECD) had been organising and developing global tax reforms with nearly 140 countries, over where multinational firms should be taxed.

But the United States under Donald Trump had pulled out of OECD digital tax negotiations in June 2020, citing a lack of progress.

That resulted in the EU in July 2020 warning America it was prepared to propose new digital tax measures at the European level if the US did not resume negotiations on the matter with OECD.

Earlier negotiations at the EU level were put on hold in order to focus on the OECD talks.