At the end of the Trump administration, the Office of the U.S. Trade Representative (USTR) determined that a number of digital service tax (DST) regimes are unreasonable or discriminatory, burden or restrict U.S. commerce, and are actionable under Section 301. On January 6, 2021, the USTR issued findings regarding India, Italy, and Turkey; and on January 14, 2021, the USTR issued findings regarding Austria, Spain, and the United Kingdom. Despite these conclusions, the USTR declined to take immediate action, noting instead that the matters would be addressed in subsequent proceedings under Section 301. At the same time, the USTR suspended the additional duties on products of France scheduled to take effect on January 6, 2021, in advance of talks in Paris at the Organisation for Economic Cooperation and Development (OECD) to reach a solution, ideally by mid-2021. As President Biden reviews all steps taken by the previous administration on trade, the USTR is encouraging a coordinated solution, and the results of other DST Section 301 investigations—Brazil, the Czech Republic, the European Union, and Indonesia—are expected in separate findings.
France and DST—the Start of the DST Wave Focus
On January 7, 2021, the USTR announced it would indefinitely suspend a retaliatory 25% tariff on imported French goods, valued at approximately $1.3 billion annually. The tariffs were originally scheduled to go into effect the day before. "The [USTR] has decided to suspend the tariffs in light of the ongoing investigation of similar DSTs adopted or under consideration in ten other jurisdictions," the agency said in a brief statement, adding, "[a] suspension of the tariff action in the France DST investigation will promote a coordinated response in all of the ongoing DST investigations."
The tariffs were announced initially by the USTR in July 2020 as a result of a Section 301 investigation into the French DST, which was found to be prejudicial to U.S. companies. The French measures were the first to be investigated by the USTR under Section 301.
OECD Holds Two-Day Consultation on Global Tax Rules
As a part of its negotiations to coordinate a global DST among its nearly 140 members, the OECD held a two-day consultation beginning on January 14, 2021, in response to calls from multinationals to change parts of its Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
During the first day of consultation, tax executives proposed simplified calculations and narrowing the scope of Pillar One—regarding reallocation of profits—of the BEPS plan. On day two, discussions centered around addressing timing differences and reducing administrative complexities associated with the Pillar Two global minimum tax plan.
At the end of the consultation, Pascal Saint-Amans, the director of the OECD Center for Tax Policy and Administration, noted that the member states, and not multinationals, would need to decide how to proceed. However, OECD negotiators are facing increasing pressure from external stakeholders. If these efforts fail, more countries may unilaterally pursue their own DSTs aimed at large U.S.-based multinational enterprises dominating the digital space, further escalating tensions between the United States and countries seeking to tax such companies.