While the Biden Administration is looking to develop agreed international taxation rules for digital services through the OECD/G20 Integrated Framework process, on Friday, March 26, 2021, USTR Katherine Tai announced next steps to maintain options while negotiations at the OECD continue. See USTR, USTR Announces Next Steps of Section 301 Digital Services Taxes Investigations, March 26, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/march/ustr-announces-next-steps-section-301-digital-services-taxes-investigations. Part of the press release is copied below.
“Six countries remain subject to potential action while broader international tax negotiations continue
“WASHINGTON – The United States Trade Representative (USTR) today announced the next steps in its Section 301 investigations of Digital Service Taxes (DSTs) adopted or under consideration by ten U.S. trading partners. In January, USTR found that the DSTs adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom were subject to action under Section 301 because they discriminated against U.S. digital companies, were inconsistent with principles of international taxation, and burdened U.S. companies. USTR is proceeding with the public notice and comment process on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations.
“’The United States is committed to working with its trading partners to resolve its concerns with digital services taxes, and to addressing broader issues of international taxation,’ said Ambassador Katherine Tai. ‘The United States remains committed to reaching an international consensus through the OECD process on international tax issues. However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs.’
“The remaining four jurisdictions – Brazil, the Czech Republic, the European Union, and Indonesia – have not adopted or not implemented the DSTs under consideration when the investigations were initiated. Accordingly, USTR is terminating these four investigations without further proceedings. If any of these jurisdictions proceeds to adopt or implement a DST, USTR may initiate new investigations.”
In prior posts, I have reviewed the investigations and reports released on the six investigations and on the French investigation which was completed earlier but where tariffs were postponed in mid-January 2021. See January 15, 2021, U.S. Section 301 investigations on digital services taxes by trading partners – USTR releases additional reports on January 14, 2021, https://currentthoughtsontrade.com/2021/01/15/u-s-section-301-investigations-on-digital-service-taxes-by-trading-partners-ustr-releases-additional-reports-on-january-14-2021/ (release of reports on Austria, Spain and the United Kingdom); January 8, 2021, U.S. Section 301 investigations on digital service taxes by trading partners – an update, https://currentthoughtsontrade.com/2021/01/08/u-s-section-301-investigations-on-digital-service-taxes-by-trading-partners-an-update/ (release of reports on India, Italy and Turkey); June 3, 2020, Digital Services Taxes – New U.S. Section 301 Investigations on Nine Countries and the European Union, https://currentthoughtsontrade.com/2020/06/03/digital-services-taxes-new-u-s-section-301-investigations-on-nine-countries-and-the-european-union/
Yesterday’s USTR press release included links to the Federal Register notices that will appear presumably next week. Each notice provides a timeline for written comments and a virtual hearing as well as the proposed list of products that could be imposed.
For example, the Federal Register notice on Austria states that “In particular, USTR proposes to impose additional tariffs of up to 25 percent ad valorem on an aggregate level of trade that would collect duties on goods of Austria in the range of the amount of the DST that Austria is expected to collect from U.S. companies. Initial estimates indicate that the value of the DST payable by U.S.-based company groups to Austria will be up to approximately $45 million per year. USTR further proposes that the goods of Austria subject to additional tariffs would be drawn from the preliminary list of products in the Annex to this notice, as
specified by the listed eight-digit tariff subheadings.” Similar language appears in each of the notices with the estimated taxes on U.S. digital services estimated at $55 million per year for India, $140 million for Italy, $155 million for Spain, $160 million for Turkey, $325 million for the United Kingdom. At an ad valorem additional duty of 25%, this means that if there is not a resolution to the issues at the OECD, duties could be applied by the U.S. on $180 million of goods from Austria, $220 million from India, $560 million from Italy, $620 million from Spain, $640 million from Turkey and $1.3 billion from the United Kingdom. Products listed in the Annex are the products from which USTR is proposing the U.S. would choose for additional duties.
All Federal Register notices seek comments on a range of issues. The language from the Turkey notice is copied below and is similar to that in each of the other five Federal Register notices.
“III. Request for Public Comments
“In accordance with section 304(b) of the Trade Act (19 U.S.C. 2414(b)), USTR invites comments from interested persons with respect to whether action is appropriate, and if so, the appropriate action to be taken.
“USTR requests comments with respect to any issue related to the action to be taken in this investigation. With respect to the proposed tariff action outline above, USTR specifically invites comments regarding:
“• The level of the burden or restriction on U.S. commerce resulting from Turkey’s DST, including the amount of DST payments owed by U.S. companies, the annual growth rate of such payments, and other effects, such as compliance costs.
“• The appropriate aggregate level of trade to be covered by additional duties.
“• The level of the increase, if any, in the rate of duty.
“• The specific products to be subject to increased duties, including whether the tariff subheadings listed in the Annex should be retained or removed, or whether tariff subheadings not currently on the list should be added.
“In commenting on the inclusion or removal of particular products on the preliminary list of products subject to the proposed additional duties, USTR requests that commenters address specifically whether imposing increased duties on a particular product would be practicable or effective to obtain the elimination of Turkey’s acts, policies, and practices, and whether imposing additional duties on a particular product would cause disproportionate economic harm to U.S. interests, including small- or medium-size businesses and consumers.
“Simultaneously with this notice, USTR also is requesting public comments on proposed trade actions in five other DST investigations initiated at the same time as the Turkey DST investigation. Certain interested persons may wish to provide written comments or oral testimony on multi-jurisdictional issues common to two or more investigations. To avoid duplication, the USTR portal will have a separate docket for multi-jurisdictional submissions, and USTR will hold a separate multi-jurisdictional hearing.
“To be assured of consideration, you must submit written comments on the proposed action by April 30, 2021, and post-hearing rebuttal comments by May 10, 2021 for the multi-jurisdictional hearing, and by May 14, 2021 for the Turkey DST hearing.”
All six notices provide the dates for requesting to appear, for submitting comments and for the hearing. The dates from the notices are copied below.
Austria notice
DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.
April 30, 2021: To be assured of consideration, submit written comments by this date.
May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.
May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.
May 11, 2021 at 9:30 am: Virtual hearing on Austria DST proposed action.
May 18, 2021: To be assured of consideration, submit Austria DST hearing rebuttal comments by this date.
India notice
DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.
April 30, 2021: To be assured of consideration, submit written comments by this date.
May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.
May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.
May 10, 2021 at 9:30 am: Virtual hearing on India DST proposed action.
May 17, 2021: To be assured of consideration, submit India DST hearing rebuttal comments by this date.
Italy notice
DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.
April 30, 2021: To be assured of consideration, submit written comments by this date.
May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.
May 5, 2021 at 9:30 am: Virtual hearing on Italy DST proposed action.
May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.
May 12, 2021: To be assured of consideration, submit Italy DST hearing rebuttal comments by this date.
Spain notice
DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.
April 30, 2021: To be assured of consideration, submit written comments by this date.
May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.
May 6, 2021 at 9:30 a.: Virtual hearing on Spain DST proposed action.
May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.
May 13, 2021: To be assured of consideration, submit Spain DST hearing rebuttal comments by this date.
Turkey notice
DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.
April 30, 2021: To be assured of consideration, submit written comments by this date.
May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.
May 7, 2021 at 9:30 am: Virtual hearing on Turkey DST proposed action.
May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.
May 14, 2021: To be assured of consideration, submit Turkey DST hearing rebuttal comments by this date.
United Kingdom notice
DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.
April 30, 2021: To be assured of consideration, submit written comments by this date.
May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.
May 4, 2021 at 9:30 a.m.: Virtual hearing on the United Kingdom DST proposed action.
May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.
May 11, 2021: To be assured of consideration, submit the United Kingdom DST hearing rebuttal comments by this date.
The Federal Register notices issued by USTR on the six countries and the notice on terminating 301 investigations on Brazil, Czech Republic, European Union and Indonesia are embedded below and will appear in the Federal Register in the next week or so.
Conclusion
The Biden Administration has rejoined the effort to find an acceptable solution to the digital services tax issue within the OECD/G20 Integrated Framework and has reportedly made a major concession to facilitate movement in the talks. SeeWall Street Journal, Yellen Removes Obstacle to Global Corporate-Tax Deal, February 26, 2021, https://www.wsj.com/articles/yellen-removes-obstacle-to-global-corporate-tax-deal-11614363591 (“Treasury Secretary Janet Yellen said Friday that the U.S. would no longer insist on a “safe harbor” under which some elements of the tax rules would be optional. The idea, proposed in late 2019 by her predecessor, Steven Mnuchin, drew objections from European counterparts, though talks on how it would work never advanced very far.”).
At the same time, the U.S. has been and remains concerned about what it views as efforts by major trading partners to impose discriminatory taxes on major U.S. digital services companies. There were many U.S. Senators who expresssed deep concerns with the practices of trading partners in this area during Ambassador Tai’s confirmation hearing to become USTR. The action taken yesterday by USTR reflects the willingness of the Biden Administration to be prepared to impose tariffs on products from selected countries where investigations have resulted in previously released reports that identified significant problems under U.S. law. At the same time, USTR has made clear that the Administration’s preferred approach is through the OECD/G20 Integrated Framework process. And USTR has terminated the remaining four investigations where reports were not released.
All of the above indicate that the U.S. will put primary focus on the ongoing OECD negotiations while preserving options under U.S. law on investigations that had proceeded to a determination by holding public hearings and considering potential products on which to impose additional tariffs. USTR’s actions should generally be acceptable to the U.S. Congress while also letting the OECD negotiations play out in the coming months while preserving options if a negotiated outcome proves illusive.
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