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26 June 2020
The Organisation for Economic Cooperation and Development's (OECD's) Inclusive Framework aims to reach an agreement on a multilateral taxation framework for the digitised economy by the end of 2020. This was always an ambitious timeline.
In his testimony to the House Ways and Means Committee on 17 June 2020, US Trade Representative Robert Lighthizer confirmed that the United States has withdrawn its participation from the OECD's digital tax talks, stating as follows:
What we need is a standard tax that takes away the tax planning that a lot of these people go into and is uniform across countries and treats every business fairly… And I think there is some… momentum to do that. But the United States will put in place, I believe it's up to the President, tariffs against these countries if they move forward unilaterally discriminating against American companies.
The United States' withdrawal from the negotiations is a step towards new tariffs on imports from countries that apply their own digital services tax (DST). Applying Section 301 of the Trade Act 1974, the United States has already found France's 3% DST to be inconsistent with international tax rules and discriminatory against large US tech firms (for further details please see "USTR opens new front in trade wars with proposed France duties"). France suspended the application of its DST shortly after the US finding in return for a US pledge not to impose tariffs on $2.4 billion of French-origin goods.
The Trump administration has again resorted to Section 301 of the Trade Act to investigate DSTs under consideration by 10 US trading partners, including the European Union. The legal test under Section 301 is whether the DSTs discriminate against, or burden or restrict the commerce of, the United States.
On 2 June 2020 the US Trade Representative (USTR) initiated its new DST Section 301 investigation. The investigation must be completed within one year, but will likely end sooner as several DSTs are already in place and taxes may be levied against US firms. The president has broad authority to retaliate by imposing tariffs, fees or other import restrictions under Section 301, and the recent frequent use of that authority against China and others has shown that the Trump administration is not reluctant to act.
Stakeholders and interested members of the public may submit comments in writing to the USTR by 15 July 2020 addressing the issue in the investigation – in particular:
While the USTR has made clear that new tariffs are on the table, agreements could be reached to avoid such escalation. Now that the United States has withdrawn from the international talks, it will likely seek to halt the DSTs one jurisdiction at a time through the imposition of tariffs if and until the United States rejoins the multilateral negotiation.
For further information on this topic please contact Claudia Hartleben at Arent Fox LLP by telephone (+1 202 857 6000) or email (firstname.lastname@example.org). The Arent Fox LLP website can be accessed at www.arentfox.com.
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