Taxes and trade: DST and tariffs

Beginning in 2019, as the risk of unilateral adoption of taxes on digital services became a reality, the U.S. government began recommending import tariffs on goods from countries that have considered or adopted DSTs, justifying on the grounds that they constitute unfair trading practices.

Pricing justifications

US law offers more than one justification for import tariffs. For example, Section 232 of the Trade Expansion Act 1962 allows the United States Department of Commerce to investigate the effect of imports on United States national security (on its own or at the request of a party interested). Section 232 was the basis for import tariffs on steel and aluminum from 2018.

Section 201 of the Trade Act 1974 allows domestic industries to seek redress from the United States International Trade Commission when the quantities imported are sufficient to cause injury to a competing United States industry – there is no need to conclude to an unfair trade practice. Section 201 was the basis for import tariffs on solar panels and washing machines in 2018.

Section 301 of the Commerce Act allows the U.S. Trade Representative (USTR) to investigate and sanction foreign countries that violate U.S. trade agreements or engage in unjustifiable, unreasonable, or discriminatory acts that affect commerce American. This section was the basis for import tariffs on intermediate inputs and capital goods from China in 2018. It is also the basis for tariffs on imports from countries considering or adopting unilateral DSTs.

Article 301

The USTR can initiate a Section 301 action on its own or in response to an industry petition. After initiating an investigation, the USTR requests consultation with the targeted foreign governments and then determines whether the conduct is an unfair trade practice. To remedy an unfair practice, the USTR may impose duties or other import restrictions, withdraw or suspend concessions from trade agreements, or enter into an agreement with the foreign government to eliminate the conduct or compensate States- United with commercial advantages.

USTR’s use of Section 301 was curtailed after the WTO introduced a dispute settlement mechanism in 1995, although the United States can still seek an unfair trade practices remedy through This article. The USTR has opened 130 cases since the passage of Section 301 in 1974, including 35 since 1995. Under the Trump administration, the USTR opened six new investigations, two of which investigated the review or adoption of a DST.

DST

The USTR opened a Section 301 investigation against France in July 2019 in response to its adoption of a 3% DST on gross revenues from digital activities when French users create value or intermediary services and advertising services. The tax only applied to businesses with annual revenues from covered services of at least 750 million euros ($ 909 million) worldwide and 25 million euros ($ 30 million) in France. .

In its investigation, the USTR concluded that the French DST discriminated against American companies. In response, France suspended its DST in January 2020 and worked with the United States through the OECD to reach a compromise. However, faced with a legal deadline, the USTR announced in July 2020 that it would impose tariffs of 25% on about $ 1.3 billion of imports, or about 2.2% of all U.S. imports. from France in 2019. He also said he would delay implementation. for 180 days (until January 6, 2021) to allow more time for resolution.

France announced in October 2020 that it would start collecting its DST in December, but the USTR did not respond by shortening the tariff suspension. In fact, in January 2021, the USTR indefinitely suspended Section 301 tariffs that were due to go into effect this month so that it could coordinate a response to additional ongoing DST investigations against 10 countries: seven for enacting guidelines. DST and three to consider them.

In June 2020, the USTR initiated Section 301 investigations into DSTs adopted by Austria, India, Indonesia, Italy, Spain, Turkey and the United Kingdom and the following month opened investigations into planned STDs by Brazil, the Czech Republic and the EU. These DSTs had varying global revenue thresholds, national revenue thresholds, and digital services subject to tax.

In January 2021, the USTR released its findings and notices of determination for the investigations into Austria, India, Italy, Spain, Turkey and the United Kingdom. Similar to the survey in France, the USTR found that DST discriminated against U.S. digital businesses and obstructed or restricted U.S. commerce.

At the end of March 2021, the USTR ended its Section 301 investigations into Brazil, the Czech Republic, the EU and Indonesia because they had not adopted or implemented their DSTs. . He also proposed action on the remaining six countries in the form of additional tariffs of 25 percent on about $ 2.1 billion in imports from them. These tariffs were suspended in early June to allow more time for multilateral negotiations.

Enter the OECD. In July, he released a statement on his proposed two-pillar solution to tackle the digital economy.

In October, the US Treasury issued a joint statement with Austria, France, Italy, Spain and the UK outlining its compromise on the treatment of unilateral DSTs before pillar 1 came into effect. This compromise involves a transitional, overlapping approach to unilateral DSTs, the implementation of Pillar 1, and the end of US trade actions. The USTR ended its Section 301 investigations of the five countries in November and announced the same deal with Turkey and India soon after.

The use of trade policy to discourage or affect tax policy illustrates the tendency for taxation and trade to become intertwined. The pillars of the OECD could become the fiscal equivalent of long-standing global trade agreements.