Worldwide: USTR Completes Section 301 Digital Services Tax Investigations in Six Jurisdictions
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On June 2, the Office of the United States Trade Representative (“USTR”) ad the conclusion of investigations under Section 301 of the Trade Act 1974 (“the Commerce Act”) regarding Digital Services Taxes (“DST”) enacted by Austria, India , Italy, Spain, Turkey and the United Kingdom. In each case, the USTR decided to impose an additional 25% duty on a range of products from the country in question, and further decided to suspend the increased duty for up to 180 days (i.e. ie until November 29, 2021) in order to give time to complete the negotiations on international taxation that are underway at the Organization for Economic Co-operation and Development (“OECD”) and in the G20 process.
The specific amounts of trade potentially subject to the increased duty vary by country, based on USTR estimates of the value of digital transactions covered by each DST and the amount of taxes assessed under each country’s DST per year. . Specifically:
- Austria: The list of products for Austria includes 23 tariff subheadings with an estimated trade value for calendar year 2019 of approximately $ 65 million. The USTR has estimated that US companies will pay up to $ 45 million per year in taxes under the Austrian DST.
- India: The list of products for India comprises 26 tariff subheadings with an estimated trade value for calendar year 2019 of approximately $ 119 million. The USTR has estimated that U.S. companies will pay up to $ 55 million per year in taxes under India’s DST.
- Italy: The list of products for Italy includes 44 tariff subheadings with an estimated trade value for calendar year 2019 of approximately $ 386 million. The USTR has estimated that US companies will pay up to $ 140 million per year in taxes under the Italian DST.
- Spain: The list of products for Spain includes 27 tariff subheadings with an estimated trade value for calendar year 2019 of approximately $ 324 million. The USTR has estimated that U.S. companies will pay up to $ 155 million per year in taxes under Spain’s DST.
- turkey: The list of products for turkey includes 32 tariff subheadings with an estimated trade value for calendar year 2019 of approximately $ 310 million. The USTR has estimated that U.S. companies will pay up to $ 160 million per year in taxes under Turkey’s DST.
- UK: The UK The product list includes 67 tariff subheadings with an estimated commercial value for calendar year 2019 of approximately $ 887 million. The USTR has estimated that US companies will pay up to $ 325 million per year in taxes under the UK DST.
This latest announcement follows previous USTR determinations in January 2021 that all six DSTs were actionable under Section 301, and its determination in March 2021 to end Section 301 investigations into four other proposed DSTs in Brazil, the Czech Republic, the European Union and Indonesia. The USTR justified the termination of these investigations on the grounds that the jurisdictions in question had not implemented the DST they had envisaged. The USTR said at the time, however, that it would consider opening new Section 301 investigations if any of the jurisdictions adopted or implemented a DST. . It remains to be seen whether the USTR will take such action, for example, with respect to the new DST which is would have under study in the EU.
Announcing the conclusion of the investigations, Ambassador Tai said that “[t]The United States is focused on finding a multilateral solution to a series of key international tax issues, including our concerns about taxes on digital services “and that”[t]he United States remains committed to achieving consensus on international tax issues through the OECD and G20 processes.[s] It is time for these negotiations to continue moving forward while retaining the ability to impose Section 301 tariffs if warranted in the future. “
Federal Register notices setting out the determinations cite Section 305 (a) of the Commerce Act as the legal authority for 180-day suspensions. This provision allows the sales representative to delay the implementation of an action for up to 180 days “if the sales representative determines … that a delay is necessary or desirable … to obtain … [a] satisfactory solution with regard to the acts, policies or practices which are the subject of the action. In other words, unless the USTR takes further action, the 25% duty on goods from each country in question will remain suspended until November 29, 2021. At this point, however, the duty will take effect, at unless the USTR requests a new suspension, as it did in the case of the DST in France.1
Observers will recall that in July 2019, the Trump administration launched a Section 301 investigation into France’s DST, which resulted in results that the DST was liable to prosecution under the law. In July 2020, the USTR determined to remedy the DST by imposing an additional 25% duty on a wide variety of French products, and – like the latest determinations – it also decided to suspend the duty for up to 180 days. USTR thereafter determined to suspend the duty until further notice, and it remains suspended today.2
WilmerHale will continue to monitor developments regarding these Section 301 investigations, the French daylight saving time measurement and other daylight saving time measurements around the world.
The USTR would likely rely on Section 307 of the Commerce Act as the legal authority for any further suspensions. This provision allows the USTR to vary an action under Section 301 if the action “is no longer appropriate.”
1 Thus, the current procedural posture of the French DST is different from other DST. In the first case, the USTR would have to issue a new determination to bring the 25% tariff into effect. In the latter case, the USTR should issue new determinations for avoid the 25% duty as of November 29, 2021.
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