Retaliation for Digital Service Taxes Not Foreclosed
Apr. 13, 2021
By: Lois E. Wetzel
At the end of March, the Office of the U.S. Trade Representative proceeded with the next stage in certain Section 301 investigations of Digital Service Taxes (DSTs) adopted or under consideration in several jurisdictions. Specifically, the USTR formally asked for public comment on trade actions for retaliatory tariffs on Austria, India, Italy, Spain, Turkey, and the United Kingdom. As background, the USTR initiated the investigations in June 2020 pursuant to Section 301 of the Trade Act of 1974. 85 FR 34709 (June 5, 2020), which permits the USTR to impose trade sanctions on foreign countries that engage in acts that are “unjustifiable,” “unreasonable” or “discriminatory” and burden U.S. commerce. On January 6, 2021, the USTR issued determinations that the DSTS adopted by India, Italy, and Turkey discriminate against U.S. companies, are inconsistent with prevailing principles of international taxation, and burden or restrict U.S. commerce. The USTR then announced additional affirmative conclusions on the discriminatory nature of the DSTs of Austria, Spain, and the United Kingdom.
The recent request for public comments works to preserve options for the USTR to act on the affirmative findings in the Section 301 investigations as the statutory period to complete such investigations is one year. Under Section 301, the USTR is authorized to respond to affirmative findings of unreasonable or discriminatory foreign trade practices by either (1) imposing duties or other import restrictions, (2) withdrawing or suspending trade agreement concessions, or (3) entering into a binding agreement with the foreign government to either eliminate the conduct in question or compensate the U.S. with satisfactory trade benefits. For each open 301 investigation, the USTR has proposed an imposition of additional tariffs of up to 25% ad valorem on goods coming into the U.S. from the offending countries. The details of the proposed actions can be found here.
After the former USTR under the Trump Administration declined to move forward on retaliatory tariffs on French goods due to DST, many were hopeful that the Biden Administration would take a different approach to dealing with the international taxation issues posed by unilateral DSTs. Early in 2021, we expressed doubt that the Biden Administration would continue to seek recourse under Section 301 but rather would press efforts for multilateral solutions at the OECD. While USTR Katherine Tai affirmed that the “United States remains committed to reaching an international consensus through the OECD process on international tax issues,” she did not reject the position that in the absence of OECD resolution, Section 301, and perhaps the imposition of tariffs thereunder, may be the appropriate vehicle for redress.
At the same time that the USTR requested public comment for the 301 investigations on Austria, India, Italy, Spain, Turkey, and the UK, the USTR terminated the Section 301 DST investigations for Brazil, the Czech Republic, the European Union, and Indonesia. Those investigations were terminated because as of March 25, 2021, none of Brazil, Czechia, or the EU had adopted DSTs while Indonesia had failed to implement the DST. The USTR reserved the right to initiate new investigations against those jurisdictions, should any of the countries proceed to adopt or implement a DST.
The deadline to submit written comments on the proposed action for retaliatory tariffs under the Section 301 DST actions is April 30, 2021; written comments must be submitted through the online USTR portal here.
For any questions on Section 301 DST investigations or Section 301 actions generally, please contact an attorney at Barnes, Richardson & Colburn, LLP.