Worldwide: USTR Completes Section 301 Investigations Of Digital Services Taxes In Six Jurisdictions

On June 2, the Office of the U.S. Trade Representative ("USTR") announced the conclusion of investigations under Section 301 of the Trade Act of 1974 ("the Trade Act") into digital services taxes ("DSTs") adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom. In each case, USTR determined to impose an additional duty of 25% on a range of goods from the country in question, and it further determined to suspend the increased duty by up to 180 days (i.e., until November 29, 2021) in order to provide time to complete negotiations over international taxation that are ongoing at the Organisation for Economic Co-operation and Development ("OECD") and in the G20 process.

The specific amounts of trade potentially subject to the increased duty varies by country, based on USTR's 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 product list for Austria includes 23 tariff subheadings with an estimated trade value for calendar year 2019 of approximately $65 million. USTR estimated that U.S. companies would pay up to $45 million per year in taxes under the Austrian DST.
• India: The product list for India includes 26 tariff subheadings with an estimated trade value for calendar year 2019 of approximately $119 million. USTR estimated that U.S. companies would pay up to $55 million per year in taxes under the Indian DST.
• Italy: The product list for Italy includes 44 tariff subheadings with an estimated trade value for calendar year 2019 of approximately $386 million. USTR estimated that U.S. companies would pay up to $140 million per year in taxes under the Italian DST.
• Spain: The product list for Spain includes 27 tariff subheadings with an estimated trade value for calendar year 2019 of approximately $324 million. USTR estimated that U.S. companies would pay up to $155 million per year in taxes under the Spanish DST.
• Turkey: The product list for Turkey includes 32 tariff subheadings with an estimated trade value for calendar year 2019 of approximately $310 million. USTR estimated that U.S. companies would pay up to $160 million per year in taxes under the Turkish DST.
• United Kingdom: The UK product list includes 67 tariff subheadings with an estimated trade value for calendar year 2019 of approximately $887 million. USTR estimated that U.S. companies would pay up to $325 million per year in taxes under the UK DST.

This latest announcement follows USTR's previous determinations in January 2021 that the six DSTs were actionable under Section 301, and its separate determination in March 2021 to terminate Section 301 investigations of four other proposed DSTs in Brazil, the Czech Republic, the European Union and Indonesia. USTR justified the terminations of those investigations on the grounds that the jurisdictions in question had not implemented the DSTs that they had been considering. USTR stated at the time, however, that it would consider initiating new Section 301 investigations if any of the jurisdictions proceeded to adopt or implement a DST. It remains to be seen if USTR will take such steps, e.g., with respect to the new DST that is reportedly under consideration in the EU.

In announcing the conclusion of the investigations, Ambassador Tai stated that "[t]he 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" and that "[t]he United States remains committed to reaching a consensus on international tax issues through the OECD and G20 processes." Ambassador Tai also noted that the suspension of the additional duty "provide[s] time for those negotiations to continue to make progress while maintaining the option of imposing tariffs under Section 301 if warranted in the future."

The Federal Register notices setting out the determinations cited section 305(a) of the Trade Act as the legal authority for the 180-day suspensions. That provision allows the Trade Representative to delay implementation of an action by up to 180 days "if the Trade Representative determines ... that a delay is necessary or desirable ... to obtain ... [a] satisfactory solution with respect to the acts, policies, or practices that are the subject of the action." While the notices state that USTR could decide at some point in the future that the suspensions should be for less than 180 days, USTR would need to issue new determinations in order to undo the suspensions. In other words, barring further action by USTR, the 25% duty on goods from each country in question will remain suspended until November 29, 2021. At that point, however, the duty will take effect, unless USTR moves for a further suspension, as it did in the case of France's DST.¹

Observers will recall that in July 2019, the Trump Administration initiated a Section 301 investigation of France's DST, which resulted in findings that the DST was actionable under the statute. In July 2020, USTR determined to address the DST by imposing an additional duty of 25% on a wide variety of French products, and – similar to the latest determinations – it also decided to suspend the duty by up to 180 days. USTR subsequently 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 DST measure, and other DST measures around the world.

Footnotes

USTR would likely rely on Section 307 of the Trade Act as the legal authority for any further suspension. That provision allows USTR to modify a Section 301 action if the action "is no longer appropriate."

1 Thus, the current procedural posture of the French DST is different from the other DSTs. In the case of the former, USTR would need to issue a new determination to bring the 25% duty into effect. In the case of the latter, USTR would need to issue new determinations to prevent the 25% duty from taking effect on November 29, 2021.