The U.S. really, really doesn’t want other countries unilaterally setting up taxes on its Big Tech champions.
On Wednesday, the Biden administration’s trade unit announced hefty 25% tariffs on more than $2 billion in imports from the U.K., Italy, India, Spain, Turkey, and Austria over their so-called digital services taxes. Then it immediately suspended the tariffs.
The timing is largely down to the fact the U.S. Trade Representative’s office had until Wednesday to make a decision about the tariffs, following one-year investigations into the question of whether the digital taxes discriminated against American firms—they do, the USTR decided.
However, the effect was to load a tariff pistol and aim it at the six countries during negotiations.
The tariffs are now suspended for up to 180 days. The USTR also suspended similar tariffs against France, another country that has adopted a digital services tax, in January.
“The United States is focused on finding a multilateral solution to a range of key issues related to international taxation, including our concerns with digital services taxes,” Trade Representative Katherine Tai said in a statement.
Agreement hopes
The U.S.’s threat came just ahead of G7 talks about the issue of corporate taxation, which has become globally urgent because of the expansion of multinationals that funnel their profits through low-tax locations. Companies such as Google and Amazon are highly relevant here because of their vast revenues, the speed at which they have expanded, and their ability to redirect profits through mechanisms such as intellectual-property licensing deals between various arms of their businesses.
If some sort of deal on a global minimum tax rate is struck at the G7 next week, it would then go through to more inclusive forums for deliberation: first the G20, then the OECD. The likelihood of success has gone up significantly since the end of the Trump administration, which was much happier than the current White House to engage in bruising trade wars with other countries.
The digital services taxes that the U.S. is now targeting were set up in the Trump era, with governments deciding that it was better not to wait for a global consensus—though many, such as the French and British governments, have been clear that these are interim measures that would be superseded by an international agreement.
The taxes on the locally generated revenues of large tech firms are generally around the 2% mark, though Turkey’s is far higher at 7.5%.
Two reports published by British and EU think tanks this week showed a global 21% minimum corporate tax rate—that was Biden’s original proposal, though he has indicated he would be satisfied with 15%—could bring in more than $20 billion more revenue for U.K. coffers each year, and over $120 billion more for the EU.
If the talks fail, the tariffs set out by the USTR would hit their targets hard, with a 25% charge being applied to $887 million of U.K. goods such as clothing and cosmetics and $386 million of Italian goods such as clothing and handbags. The same tariff would apply to $323 million in Spanish goods, $310 million in Turkish goods, $118 million in Indian goods, and $65 million in Austrian goods.
The USTR is still reviewing digital tax practices in the EU as a whole, the Czech Republic, Indonesia, and Brazil.
