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USTR proposes potential tariffs pending six digital tax investigations; closes four others
April 2021
In brief
The United States Trade Representative (USTR) on March 26 published updates to digital service tax (DST) investigations regarding Austria, India, Italy, Spain, Turkey, the UK, Brazil, the Czech Republic, the EU, and Indonesia. The USTR has terminated its investigations regarding Brazil, the Czech Republic, the EU, and Indonesia because those jurisdictions either have not adopted or not implemented a DST during the period of investigation. For the other countries, the investigatory process is continuing, and the USTR has proposed a list of goods for potential tariffs.
The USTR is soliciting comments from the public regarding the proposed tariffs and has scheduled both a multi-jurisdictional hearing as well as hearings regarding each country. The March 26 USTR updates may be found on the USTR’s website.
Action item: Companies importing from any of the six referenced countries should review the proposed product listings and, if potentially affected by any of the tariffs under consideration, should determine whether to submit written comments and requests to appear at the applicable hearings.
In detail
Austria
Austria has adopted a DST that imposes a 5% tax on gross revenues from digital advertising services provided in that country. The Austrian DST applies only to companies with annual global revenues of €750 million or more, and with annual revenues from digital advertising services in Austria of €25 million or more.
The USTR proposes to impose additional tariffs of up to 25% ad valorem on an aggregate level of trade that would collect duties on goods of Austria in the range of the amount of the DST that Austria is expected to collect from US companies. Initial estimates indicate that the value of the DST payable by US-based company groups to Austria will be up to approximately $45 million per year.
The USTR further proposes that the Austrian goods subject to additional tariffs would be drawn from the preliminary list of products in the Annex to the March 26 notice regarding that country. The list includes leather goods, glassware, optical products, printed circuits, radar apparatus, and grand pianos.
India
India has adopted a DST that imposes a 2% tax on revenue generated from a broad range of digital services offered in that country, including digital platform services, digital content sales, digital sales of a company's own goods, data-related services, software-as-a-service, and several other categories of digital services. India's DST applies only to ‘non-resident’ companies.
The USTR proposes to impose additional tariffs of up to 25% ad valorem on an aggregate level of trade that would collect duties on goods of India in the range of the amount of DST that India is expected to collect from US companies. Initial estimates indicate that the value of the DST payable by US-based company groups to India will be up to approximately $55 million per year.
The USTR further proposes that the Indian goods subject to additional tariffs would be drawn from the preliminary list of products in the Annex to the March 26 notice regarding that country. The list includes seafood, basmati rice, bamboo products, jewelry, and furniture.
Italy
Italy has adopted a DST that applies to companies that, during the previous calendar year, generated €750 million or more in worldwide revenues and €5.5 million or more in revenues deriving from the provision of digital services in that country.
The USTR proposes to impose additional tariffs of up to 25% ad valorem on an aggregate level of trade that would collect duties on goods of Italy in the range of the amount of DST that Italy is expected to collect from US companies. Initial estimates indicate that the value of the DST payable by US-based company groups to Italy will be up to approximately $140 million per year.
The USTR further proposes that the goods of Italy subject to additional tariffs would be drawn from the preliminary list of products in the Annex to the March 26 notice regarding that country. The list includes anchovies, caviar, hats, gloves, shoes, suits, and outerwear.
Spain
Spain has adopted a DST that applies a 3% tax on certain digital services revenues related to online advertising services, online intermediary services, and data transmission services. Companies with worldwide revenues of €750 million or more and €3 million in certain digital services revenues are subject to the DST.
The USTR proposes to impose additional tariffs of up to 25% ad valorem on an aggregate level of trade that would collect duties on goods of Spain in the range of the amount of the DST that Spain is expected to collect from US companies. Initial estimates indicate that the value of the DST payable by US-based company groups to Spain will be up to approximately $155 million per year.
USTR further proposes that the Spanish goods subject to additional tariffs would be drawn from the preliminary list of products in the Annex to the March 26 notice regarding that country. The list includes seafood, belts, hats, shoes, and glassware.
Turkey
Turkey has adopted a DST that applies to companies that during the previous calendar year generated €750 million or more in worldwide revenues and TRY 20 million or more in revenues deriving from the provision of digital services in Turkey.
The USTR proposes to impose additional tariffs of up to 25% ad valorem on an aggregate level of trade that would collect duties on Turkish goods in the range of the amount of the DST that Turkey is expected to collect from US companies. Initial estimates indicate that the value of the DST payable by US-based company groups to Turkey will be up to approximately $160 million per year.
The USTR further proposes that the Turkish goods subject to additional tariffs would be drawn from the preliminary list of products in the Annex to the March 26 notice regarding that country. The list includes carpets, building materials, and jewelry.
United Kingdom
The United Kingdom has adopted a DST that applies a 2% tax on the revenues of certain search engines, social media platforms and online marketplaces. The UK DST applies only to companies with digital services revenues exceeding £500 million and United Kingdom digital services revenues exceeding £25 million.
The USTR proposes to impose additional tariffs of up to 25% ad valorem on an aggregate level of trade that would collect duties on UK goods in the range of the amount of the DST that the United Kingdom is expected to collect from US companies. Initial estimates indicate that the value of the DST payable by US-based company groups to the United Kingdom will be up to approximately $325 million per year.
The USTR further proposes that the UK goods subject to additional tariffs would be drawn from the preliminary list of products in the Annex to the March 26 notice regarding that country. The list includes cosmetics, bath products, saddles and harnesses, clothing, shoes, jewelry, refrigerators, furniture, and toys and games.
The takeaway
The March 26 notices indicate that the possibility of enforcement tariffs remains despite the change in administration. They further indicate how actions taken by the previous administration have paved the way for the current and future administrations to use these measures. Companies should remain aware that actions taken by other countries that affect companies doing business in the United States could lead to the imposition of US tariffs on goods from such other countries.
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Maytee Pereira
Managing Director, PwC's Customs and International Trade Practice Co-Leader, PwC US
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