USTR Terminates Section 301 Digital Service Tax Actions in Austria, France, Italy, Spain and UK; Trésor announces DST agreement with Turkey

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USTR Terminates Section 301 Digital Service Tax Actions in Austria, France, Italy, Spain and UK; Trésor announces DST agreement with Turkey


On November 19, the Office of the United States Trade Representative (USTR) announced that it would end actions it had taken under Section 301 of the Commerce Act of 1974 regarding taxes on digital services. (DST) adopted by Austria, France, Italy, Spain and United Kingdom. In essence, the USTR lifted the threat of tariff retaliation, citing a political agreement reached between the US Department of the Treasury (Treasury) and the five countries that should lead to the withdrawal of DST from each country. The USTR also announced that it would monitor the implementation of the political agreement in coordination with the Treasury. If the USTR subsequently determines that a country is not satisfactorily implementing the agreement, it will consider further action under Section 301.
Subsequently, on November 22, the Treasury announced an agreement with Turkey which provides that the same conditions that apply under the political agreement with Austria, France, Italy, Spain and UK will also apply to Turkish Daylight Saving Time. Therefore, Turkey will withdraw its DST in the same way as the other five countries. It appears the USTR will also end its proposed action regarding Turkey’s Daylight Saving Time, although the USTR has yet to issue its termination notice.

As WilmerHale previously reported, the USTR opened its investigation into French DST on July 10, 2019. The USTR ultimately determined that DST was prosecutable under the article 301, and it further decided to respond to summer time by imposing an additional 25% duty on the specified French. some products. The USTR, however, simultaneously suspended the application of the additional duties, in order to allow time for bilateral and multilateral discussions to resolve the issue.

Likewise, the USTR opened its investigations into Austrian, Italian, Spanish, Turkish and UK DSTs (as well as Indian DST) on June 5, 2020.1 The USTR announced the conclusion of the investigations on June 2, 2021, determining in each case to impose an additional 25% duty on a range of goods from the country in question. Again, however, the USTR simultaneously suspended the increased duty for up to 180 days to allow time to complete the international tax negotiations that were underway at the Organization for Economic Co-operation and Development (OECD) and in the G20 process. (This suspended right is the action that the USTR terminated against each country on November 19, 2021.)

On October 8, 2021, Austria, France, Italy, Spain and the United Kingdom joined the United States and 130 other jurisdictions participating in the OECD negotiations to reach a political agreement on a solution two-pillar to meet the fiscal challenges associated with the digitization of the global economy. Under Pillar 1, countries agreed to remove existing DSTs and coordinate the removal of these measures. On October 21, the USTR and the Treasury announced that Austria, France, Italy, Spain and the United Kingdom had reached an agreement with the United States on a transitional approach for now. of each country while implementing Pillar 1. Under the terms of the agreement, the five countries are not required to withdraw their DSTs until Pillar 1 comes into effect, but any liabilities of DST that accumulates during the transition period will be credited against future corporate taxes owed under Pillar 1. In return, the United States has agreed to terminate Section 301 actions, and it is ‘is committed not to impose further measures against the DSTs of the five countries before the entry into force of the first pillar or on December 31, 2023.

Announcing the Oct.21 deal, US Trade Representative Katherine Tai commended the five countries for addressing US concerns about their DST, and said the US “will continue to work. ‘oppose the implementation of unilateral taxes on digital services by other trading partners’. His statement also noted that Turkey and India had not joined the October 21 deal. However, Turkey subsequently did so on November 22, as noted above. And it is possible that India will do the same, as the additional 25% duty on goods from India is expected to come into effect on November 29, and Ambassador Tai is currently in India for talks which apparently include Indian summer time.

The USTR’s decision to lift the threat of tariff retaliation for DSTs imposed by Austria, France, Italy and Spain is the latest step in the Biden administration’s efforts to reduce trade tensions with the ‘Europe. This follows the agreements reached on October 31 on steel and aluminum tariffs and the joint US-EU cooperation framework on large civil aircraft announced on June 15. This may not prove to be sustainable, however, as the EU is on the verge of adopting new policies that appear to target US businesses. The EU’s proposed Digital Markets Act (DMA), for example, resembles DST in its use of thresholds that appear designed to capture US companies while excluding their European competitors from coverage. In this regard, the DMA also appears vulnerable to trade measures under Section 301.

WilmerHale will continue to monitor developments regarding these Section 301 investigations, as well as other DST actions around the world.

Footnotes –

  1. The June 5 investigation also included reviews of DSTs adopted or contemplated by Brazil, the Czech Republic, the European Union and Indonesia. The USTR terminated these investigations on March 31, 2021, after determining that the five jurisdictions did not adopt or implement DST during the investigation period.

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