The Office of the U.S. Trade Representative (USTR) has issued findings in its Section 301 investigations of Digital Service Taxes (DSTs) adopted by India, Italy and Turkey. In each report, the USTR found that the DSTs: (i) create “a significant new tax burden for U.S. companies, [and] taxes an unusually broad array of digital services”; (ii) are “inconsistent with prevailing international tax principles”; (iii) force U.S. companies to “undertake costly compliance measures”; (iv) impose a wide range of burdens and “subject U.S. companies to multiple layers of taxation”; and, (v) potentially expose “U.S. companies to unusually harsh penalties for non-compliance.” As a result, the USTR determined that:
- DSTs, “by [their] structure and operation, discriminate[ ] against U.S. digital companies, including due to the selection of covered services and [their] applicability only to non-resident companies.”
- DSTs are “unreasonable because [they are] inconsistent with principles of international taxation, including due to [their] application to revenue rather than income, extraterritorial application, and failure to provide tax certainty.”
- DSTs “burden[ ] or restrict[ ] U.S. commerce.”
DSTs are taxes on revenue that certain companies generate from providing covered digital services to, or aimed at, users in that particular jurisdiction. For example, DSTs may impact multinational businesses providing online advertising services, selling consumer data, or running online intermediary platforms. The findings on each of the DSTs are supported by comprehensive reports, which are available here – India, Italy and Turkey.
Despite these findings, the USTR has stated that it will not currently take any specific actions but will continue to evaluate all available options and address matters in future proceedings under Section 301 of the Trade Act of 1974. For additional information on the initiation of these investigations, see Update of June 4, 2020.
In light of these ongoing investigations, USTR has also suspended the implementation of retaliatory taxes in a related France DSTs investigation. See Update of January 6, 2021. USTR investigations also continue into DSTs implemented or under consideration by Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain and the United Kingdom.