• by Thom Forbes  @tforbes, June 3, 2020

U.S. trade representative Robert E. Lighthizer yesterday announced an investigation into digital services taxes on U.S.-based tech companies like Google, Amazon, Facebook and Apple that have been adopted, or are being considered, by a number of countries around the world.

“President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” Lighthizer said in a statement. “We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”

The taxes “have been adopted or proposed in nine countries and the European Union, escalating a global battle that will affect where big American tech companies … pay taxes,” write  Jim Tankersley and Ana Swanson for The New York Times.

“At issue are efforts spreading across Europe and beyond to impose so-called digital services taxes on economic activity generated online. Those taxes deviate from many traditional international tax regimes by affecting revenues earned by a company where they are generated -- regardless of whether the company has a physical presence there. For example, India imposed a 2% tax in April on online sales of goods and services to people in India by large foreign firms. The European Union has revived its push for a similar tax as a way to help fund response measures to the coronavirus,” Tankersley and Swanson add.

“Digital tax policies have always posed a threat to the U.S. economy and tax base, but this threat is exacerbated by the coronavirus. Increasing taxes on our companies will make our own economic recovery more difficult, and looting our tax base will make an already troubling fiscal situation worse,” attorney Clete Willems, a former deputy director of the National Economic Council who is representing U.S. tech companies fighting trade barriers abroad, wrote  in a CNBC op-ed piece last week.

“The United States has sought to address this problem through multilateral negotiations and trade enforcement investigations, but as more discriminatory taxes appear, new incentives appear needed. Fortunately, the United States is actively negotiating with the European Union, the United Kingdom, Kenya, India, and Brazil -- all of whom are considering digital services taxes and have much to gain from a U.S. deal,” Willems continued.

“A so-called section 301 investigation by USTR can take months before a decision is made on whether to impose tariffs. The U.S. used the same avenue to conclude wrongdoing by China that led to tariffs on some $360 billion in goods from world’s second-largest economy,” write  Jenny Leonard and Laura Davison for Bloomberg.

“USTR has launched and completed a 301 probe into France’s digital services tax regime but held off on levying duties on the country as the two sides are negotiating a global regime at the Organization for Economic Cooperation and Development.”

That “authorized the president to impose tariffs of up to 100% on a range of products from France, including popular wines and cheeses. American importers of French goods protested loudly, while the French threatened to retaliate with their own tariffs,” David J. Lynch writes  for The Washington Post.

“But in January, the two countries paused their dispute while the Organization for Economic Co-operation and Development (OECD) tries to broker a global consensus on digital taxation. Officials hope to reach an agreement by October.

“If the talks led by the Paris-based OECD falter, and the digital tax investigation results in new tariffs, it could wreck several ongoing trade negotiations, including with Britain, the European Union and India,” Lynch adds.

British prime minister Boris Johnson, meanwhile, “has continued to back the British levy, despite pressure from the White House to drop it. In January Steven Mnuchin, the U.S. Treasury secretary, said that the U.K. could find itself ‘faced with President Trump’s tariffs’ if the tax was implemented,” James Dean writes  for TheTimes of London.

Yesterday’s announcement “attracted bipartisan support from the influential Senate finance committee. In a joint statement, the Republican chairman of the committee, Chuck Grassley, and top Democrat, Ron Wyden, said digital services taxes 'unfairly target and discriminate against U.S. companies,’” James Politi and Aime Williams write  for Financial Times.

“‘Actions taken by OECD member states to enact digital services taxes are contrary to the organisation’s goals and are counter to the OECD process,’ Grassley and Wyden wrote. ‘We support USTR’s use of the section 301 investigation process to examine these discriminatory unilateral measures.’”