US suspends tariffs on European nations in digital tax dispute

United States Trade Representative Katherine C. Tai testifies before the Senate Finance Committee on Capitol Hill in Washington, DC, USA, 12 May 2021, during a hearing to examine President Joe Biden’s 2021 trade policy agenda. [EPA-EFE/Susan Walsh]

The US government announced Wednesday (2 June) it is suspending for six months punitive tariffs on Britain, India and four European nations while it works to resolve a dispute over digital services taxes.

The decision comes at the conclusion of a year-long investigation into taxes that Washington says discriminated against big US tech companies like Apple, Amazon, Google and Facebook.

The 25% duties were never imposed, but were intended to also target Austria, Italy, Spain and Turkey.

While trade authorities ruled the tariffs were justified, “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,” US Trade Representative (USTR) Katherine Tai said in a statement.

President Joe Biden’s administration is pushing for a 15% global minimum corporate tax that aims to resolve the issue of corporations sheltering profits in low-tax nations.

The decision comes just ahead of a two-day meeting in London starting Friday of finance ministers from the Group of Seven rich countries to hammer out a deal on the tax issue.

Officials then would try to win broader support from the G20 and the 38-member Organization for Economic Co-operation and Development (OECD) which has led the effort to harmonize taxation.

However, Ireland, which has become a haven for many multinationals, has expressed opposition to the global minimum tax.

G7 leaders will meet later in June, following by a G20 finance ministers meeting in July.

Commission on track for digital levy proposal by June

The European Commission is on track with plans to present a digital tax by June despite recent progress at the level of the Organization for Economic Cooperation and Development (OECD), the Commission’s Executive Vice-President Margrethe Vestager has said.

Committed to a solution

USTR made clear it still has the option to impose the punitive duties on goods from the countries that adopted the digital services taxes.

“The United States remains committed to reaching a consensus on international tax issues through the OECD and G20 processes,” Tai said.

“Today’s actions provide time for those negotiations to continue to make progress while maintaining the option of imposing tariffs… if warranted in the future.”

The so-called Section 301 investigation ruled that the tax “discriminates against US companies, is inconsistent with prevailing principles of international taxation and burden or restricts US commerce.”

USTR in January also suspended 25% tariffs on $1.3 billion in French goods imposed in the dispute.

In March, USTR terminated investigations of Brazil, the Czech Republic, the European Union and Indonesia, since those governments did not implement a digital services tax.

Europe to push ahead with digital tax despite US ‘threats’

The European Commission plans to put forward a proposal for a digital tax if the international efforts fail this year after the US withdrawal, ignoring Washington’s threats if Europe moves ahead.

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