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The U.S. Trade Representative Expands Its Digital Services Tax Investigations

5 min readBy: Daniel Bunn

Today, the United States Trade Representative (USTR) announced Section 301 Investigations into Digital Services TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. (DST) policies in nine countries and the European Union. The announcement follows an investigation of the French DST that was completed in 2019, after which the USTR threatened significant tariffs in retaliation against France.

These new investigations could lead to another round of tariffTariffs are taxes imposed by one country on goods or services imported from another country. Tariffs are trade barriers that raise prices and reduce available quantities of goods and services for U.S. businesses and consumers. threats. In which case, an international tax and trade war would be incredibly harmful to the global economy, especially during the current economic crisis.

The policies targeted by the USTR include some that have been implemented (in Austria, India, Indonesia, Italy, Turkey, and the UK) as well as some that are just proposals (in Brazil, the European Union, Czech Republic, and Spain).

Digital tax policies have become more common around the world in recent years, and DSTs have generated significant questions pertaining to their place in the context of international tax and trade laws.

While the policies targeted by this investigation differ in some details, they generally tax the gross revenues of large digital companies. The USTR investigation into the French DST resulted in a report that highlighted several features of the French DST that led the U.S. to propose tariffs of up to 100 percent on certain French exports to the U.S. Among those features, the USTR noted that the design of the tax discriminated against U.S.-based digital companies and the policy conflicted with prevailing tax principles by taxing gross revenues rather than net income.

Following the tariff threat from the U.S., France decided to delay collection of the tax until 2021 (although tax liability would accrue in 2020).

The USTR is now putting pressure on these other jurisdictions to remove their policies.

It will focus these investigations on identifying discrimination against U.S. companies, retroactivity, and departures from international tax norms in the form of “extraterritoriality; taxing revenue not income; and a purpose of penalizing particular technology companies for their commercial success.

The announcement by the USTR will surely be noticed by the OECD, which has been working to negotiate new international tax ruleInternational tax rules apply to income companies earn from their overseas operations and sales. Tax treaties between countries determine which country collects tax revenue, and anti-avoidance rules are put in place to limit gaps companies use to minimize their global tax burden. s among nearly 140 countries. The goal of the OECD is to design new rules for taxing multinationals, particularly digital companies, by the end of 2020.

A multilateral solution to digital taxation would be superior to conflicts arising from DSTs and retaliatory tariffs. Today’s announcement puts more pressure on the OECD not only to achieve an agreement but to also tie that agreement to a transition period during which the new rules are implemented while distilling digital tax and trade conflicts.

Unfortunately, many countries are charting their own course on digital taxation, and the U.S. is right to identify the taxes as potential trade barriers. However, instead of erecting new barriers to trade in response to harmful tax policies, the U.S. and other countries should focus on policies that promote long-term growth.

During the current ongoing economic crisis, countries should be willing to work together to avoid new conflicts that could hinder an economic recovery.

Policies Targeted by the USTR Investigation
Country Tax Rate Scope Global Revenue Threshold Domestic Revenue Threshold Status

Austria (AT)


Online advertising

€750 million (US $840 million)

€25 million ($28 million)

Implemented (Effective from January 2020)

Brazil (BR)


  • Targeted online advertising

  • Use of digital interfaces

  • Transmission of user data generated from using a digital interface

R$3 billion ($760 million)

R$100 million ($25 million)


Czech Republic (CZ)


  • Targeted advertising

  • Use of multilateral digital interfaces

  • Provision of user data
    (additional thresholds apply)

€750 million ($840 million)

CZK 100 million ($4 million)

Proposed (Delayed until 2021 to wait for agreement at the OECD level; there have been discussions to lower the proposed tax rate)

European Union (EU)


  • Digital advertising

  • Online marketplace

  • Sales of user data

€750 million (US $840 million)

€50 million ($56 million)

Proposed (Announced and negotiated in 2018; recently announced again, although it is unclear whether there will be a new version of the proposal)

India (IN)

6% and 2%

  • Online advertising services (6%)

  • E-commerce operators (2%)

Rs. 2 crores ($284,000)

Implemented (India introduced its “equalisation levy” in 2016, a 6 percent tax on gross revenues from online advertising services provided by nonresident businesses; as of April 2020, the equalisation levy expanded to apply a 2 percent tax on revenues of nonresident e-commerce operators that are not subject to the already existing 6 percent equalisation levy)

Indonesia (ID)





Implemented (So-called “Electronic Transaction Tax” effective from March 2020; imposed on e-commerce sales when the digital PE cannot be applied due to the provision of a tax treaty; details TBA)

Italy (IT)


  • Advertising on a digital interface

  • Multilateral digital interface that allows users to buy/sell goods and services

  • Transmission of user data generated from using a digital interface

€750 million ($840 million)

€5.5 million ($6 million)

Implemented (Effective from January 2020)

Spain (ES)


  • Online advertising services

  • Sale of online advertising

  • Sale of user data

€750 million ($840 million)

€3 million ($3 million)

Proposed (The Spanish Parliament rejected the government’s proposed budget bill for 2019, which included the digital services tax; however, a new draft law for a DST was introduced this year)

Turkey (TR)


Online services including advertisements, sales of content, and paid services on social media websites

€750 million ($840 million)

TRY 20 million ($4 million)

Implemented (Effective from March 2020; the president can reduce the DST rate downward to 1% or increase it upward to 15%)

United Kingdom (GB)


  • Social media platforms

  • Internet search engine

  • Online marketplace

£500 million ($638 million)

£25 million ($32 million)

Implemented (The UK government stated in its Finance Bill 2020 that the DST would go into effect as of April 1, 2020; the Finance Bill is currently in the Parliament and is expected to be enacted this summer)

Source: KPMG, “Taxation of the Digitalized Economy: Developments Summary,” updated May 15, 2020,

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