Are tech taxes the next big transatlantic tariff fight?

Tax | | MIC Customs Solutions |

The US has moved forward with consultations on proposed tariffs against the UK and five other countries in response to new digital services taxes targeting American tech firms.


A dispute between the US and several other countries around the world over the taxes paid by big tech firms looks set to ramp up again, after Washington warned it could impose new tariffs on nations that it believes are not treating its firms fairly.

The row, which began under the administration of president Donald Trump, had appeared to have dampened somewhat in January, when the US Trade Representative's (USTR's) office announced the suspension of tariffs on French goods. However, it now appears to be heating up again following the confirmation of new USTR Katherine Tai.

What is the dispute about?

The dispute relates to a series of digital services taxes (DSTs) imposed by many nations around the world in the last couple of years. These are intended to ensure that large technology companies pay taxes on their activities in countries they do business in, regardless of where they are based.

For example, in 2020, the UK introduced a levy of two percent on revenue generated in the country by search engines, social media services and online marketplaces. It followed years of accusations that big tech players were getting away with paying little or no tax in many countries by basing their activities offshore.

The US, however, has taken issue with these rules, arguing that they unfairly target American companies such as Google, Facebook and Amazon. In a statement last week announcing a public hearing into the UK's DST, the USTR described the levy as an  "unreasonable and discriminatory" duty that "burdens or restricts US commerce".

Which countries and goods could face new tariffs?

The UK is far from the only country being pressured to drop DSTs or face the prospect of retaliatory action. Other countries also highlighted by the US last week include Austria, India, Italy, Spain and Turkey.

Ms Tai said: "The United States remains committed to reaching an international consensus through the OECD [Organization for Economic Cooperation and Development] process on international tax issues. However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs."

In its latest announcement, the USTR signaled levies of up to 25 percent could be imposed on around $325m (£235m) of UK imports a year. This would cover goods including ceramics, make-up, clothing, games consoles and furniture.

Adam Mansell, head of the UK Fashion and Textile Association, said the prospect of tariffs is "hugely disappointing", especially at a time when the industry is still struggling with the impact of Brexit and Covid-19. 

He told the BBC: "At a time when we are trying to start discussions over a UK-US trade deal, it is extremely important that both governments get around the table to remove this threat as soon as possible." 

Meanwhile, similar actions against Brazil, the Czech Republic, Indonesia and the EU as a whole have been dropped as they have not implemented DSTs during the USTR's investigations. However, the US has signaled that should any of these jurisdictions move ahead with such plans, the USTR may initiate new investigations.

Could the situation yet be resolved?

Representatives of the UK and US governments have been discussing these issues for a while, with talks taking place in December. 

As the suspension of tariffs against France in January has indicated, the US may be keener than in the past to engage in dialogue with its trading partners, although the USTR has confirmed that it is maintaining the right to reimpose duties on $1.3 billion in imports including Champagne, cosmetics and handbags.

The progress made between Washington, the UK and the EU on the matter of tariffs related to aircraft manufacturing subsidies may also indicate there is a deal to be struck, working through the OECD.

While the US has generally been seen as taking a less confrontational attitude to international trade disputes under the administration of Joe Biden, Ms Tai stated in her Senate confirmation hearing last month that tariffs remain a "legitimate tool" for US policy.

One possibility to resolve the issue is to work through the OECD to agree a global consensus for digital services taxes. The UK has indicated it would repeal its own levy if this were to be implemented. Meanwhile, Ms Tai said the US is prepared to work with its trading partners to resolve concerns with DSTs and to address wider issues of taxation.