Insights

USTR Enacts Then Suspends Tariffs in Response to Digital Services Taxes

By: Derrick Kyle, Associate
Date: 07/03/2021

On June 2, 2021, the U.S. Trade Representative (“USTR”) announced the imposition – and immediate 180-day suspension – of 25% tariffs on goods from six countries pursuant to findings in the Section 301 of the Trade Act of 1974 investigations (“Section 301 investigations”) into digital services tax (“DST”) regimes.[1]

The affected countries are Austria, India, Italy, Spain, Turkey, and the United Kingdom. Per a USTR press release, the tariff actions are suspended until November 29, 2021 to provide additional time to complete the ongoing multilateral negotiations on international taxation at the Organisation for Economic Co-operation and Development and in the G20 process.[2] This is not the first time in these negotiations that this tactic was used: the USTR previously imposed, and immediately suspended, 25% tariffs on French goods on July 10, 2020 in response to France’s DST.[3]

Depending on the eventual outcome of the negotiations, the tariff actions have the potential to strain relationships with U.S. trade partners, including close allies like France and the U.K.

Digital Services Taxes

A “digital services tax” is used to tax large multinational technology companies (e.g., Amazon, Facebook, Google) based on their digital, rather than physical, presence. In contrast to established international taxation norms that generally require a physical nexus to the country imposing the tax, DST regimes tax online economic activity that occurs within a country’s borders, even in the absence of any physical presence in the country by a particular company. These taxes disproportionately affect U.S. multinational technology companies due to the outsized role these companies play in the digital economy.

DSTs vary between the implementing countries, with notable differences in the taxable activity, revenue thresholds, and tax rate. See the below table summarizing the DSTs in the countries subject to the suspended tariff actions.

Country

Taxable Activity

Tax Rate

Revenue Threshold

Austria

Digital advertising

5%

€750 million (global revenue) and €25 million (digital advertising in Austria)

France

Digital interface services and targeted advertising services

3%

€750 million (global digital services revenue) and €25 million (digital services in France)

India

Digital platform services, digital content sales, digital sales of goods, data-related services, software as a service, and several other categories of digital services

2%

Rs. 2 crores, or approximately $267,000 (digital services in India)

Italy

Targeted advertising services, digital interface services, and data transmission services

3%

€750 million (global revenue) and €5.5 million (digital services in Italy)

Spain

Online advertising services, online intermediary services, and data transmission services

3%

€750 million (global revenue) and €3 million (digital services)

Turkey

Digital advertising, marketplace services, and the provision of digital content

7.5%

€750 million (global revenue) and TRY 20 million, or approximately €2 million (digital services in Turkey)

United Kingdom

Search engines, social media platforms, and online marketplaces

2%

£500 million (global digital services revenues) and £25 million (digital services in U.K.)

 

Section 301 Investigations

The USTR’s initial Section 301 investigation into DSTs focused only on France’s DST, which was enacted formally on July 24, 2019. The USTR’s subsequent investigations of additional countries’ DSTs were initiated on June 5, 2020 and originally focused on nine countries and the European Union (“EU”), all of which had adopted or were considering adopting DSTs.

On March 31, 2021, the USTR terminated the Section 301 investigations with respect to Brazil, the Czech Republic, the EU, and Indonesia because these jurisdictions had not adopted nor implemented DSTs during the period of the investigations.[4] After completing the investigations with respect to the remaining six countries, the USTR determined that the DSTs in these countries were unreasonable or discriminatory and as such burden or restrict U.S. commerce.

Prior to enacting the tariff actions, the USTR invited public comment and held hearings related to the investigations in each jurisdiction. Pursuant to the DST investigation with respect to France, interested persons filed nearly 3,800 public comments. More than 380 written comments were submitted with respect to the investigations of the additional countries’ DST regimes.

Tariff Actions

On July 10, 2020, the USTR imposed 25% tariffs on $1.3 billion worth of imports from France. At the same time, the USTR announced that it would suspend the additional tariffs for 180 days amidst continued bilateral and multilateral discussions regarding DSTs.

The list of products subject to the additional duties is limited to certain cosmetics, soaps, and leather goods. On January 6, 2021, the USTR suspended the additional tariffs indefinitely pending ongoing investigations with respect to the additional countries’ DSTs.[5]

Similar to the suspended tariff actions in response to France’s DST, the tariff actions with respect to the additional countries are limited to certain products, based on enumerated Harmonized Tariff Schedule of the United States (“HTSUS”) codes. The USTR has suspended these tariff actions until November 29, 2021.

See the below non-exclusive list of the types of products for which the suspended tariffs are enacted for each country.

  • Austria: Glassware and Optical Goods
  • India: Shrimp, Basmati Rice, Bamboo Goods, Cork Products, Cigarette Paper, Jewelry, Pearls, Precious/Semiprecious Stones, and Various Furniture Items
  • Italy: Caviar, Perfumes, Handbags, Apparel, Footwear, and Eyeglass Lenses
  • Spain: Shrimp, Octopus, Handbags, Belts, Footwear, Hats, and Glassware
  • Turkey: Carpets, Linen, Building Stones, Porcelain and Ceramic Articles, and Jewelry
  • United Kingdom: Apparel, Footwear, Ceramic Goods, Jewelry, Refrigerator Products, Furniture, Toys, and Games

[1] Notice of Action in the Section 301 Investigation of Austria’s Digital Services Tax, 86 Fed. Reg. 30,361 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11856.pdf; Notice of Action in the Section 301 Investigation of India’s Digital Services Tax, 86 Fed. Reg. 30,356 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11858.pdf; Notice of Action in the Section 301 Investigation of Italy’s Digital Services Tax, 86 Fed. Reg. 30,350 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11859.pdf; Notice of Action in the Section 301 Investigation of Spain’s Digital Services Tax, 86 Fed. Reg. 30,358 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11863.pdf; Notice of Action in the Section 301 Investigation of Turkey’s Digital Services Tax, 86 Fed. Reg. 30,353 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11861.pdfNotice of Action in the Section 301 Investigation of the United Kingdom’s Digital Services Tax, 86 Fed. Reg. 30,364 (June 7, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-11862.pdf.

[2] USTR Announces, and Immediately Suspends, Tariffs in Section 301 Digital Services Taxes, Investigations, Press Release, United States Trade Representative (June 2, 2021), available at https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/june/ustr-announces-and-immediately-suspends-tariffs-section-301-digital-services-taxes-investigations.

[3] Notice of Action in the Section 301 Investigation of France’s Digital Services Tax, 85 Fed. Reg. 43,292 (July 16, 2020), available at https://ustr.gov/sites/default/files/enforcement/301Investigations/France_Digital_Services_Tax_Notice_July_2020.pdf.

[4] Termination of Section 301 Digital Services Tax Investigations of Brazil, the Czech Republic, the European Union, and Indonesia, 86 Fed. Reg. 16,828 (Mar. 31, 2021), available at https://ustr.gov/sites/default/files/enforcement/301Investigations/DST_Termination_FRN_March.pdf.

[5] Notice of Modification of Section 301 Action: Investigation of France’s Digital Services Tax, 86 Fed. Reg. 2,479 (Jan. 12, 2021), available at https://ustr.gov/sites/default/files/enforcement/301Investigations/Notice_of_Modification_France_DST_January_2021.pdf.

Companies that import from any of the above countries should review the specific products, organized by HTSUS codes, that are subject to the suspended tariffs. The products are listed in the annexes to the Notices of Action for each respective country (the Notices of Action can be found on the USTR website).

The United States will continue its ongoing negotiations related to the DST issue, but, if no resolution is agreed upon, U.S. importers may face additional duties on imports from the countries discussed above. Additionally, U.S. companies that do business in or with any of these countries should be prepared for the possibility of retaliatory tariffs or other measures if the USTR implements the tariff actions at the end of the suspension period on November 29, 2021 (or potentially sooner with respect to France).

If you require assistance determining whether any goods you import are subject to the tariff actions, or if you have other questions related to the DST investigations, please do not hesitate to contact the attorneys at Torres Law.

Categories