US confronts 'digital dagger' from overseas aimed at top tech companies

Gopal Ratnam, CQ-Roll Call on

Published in Business News

Tai, who was confirmed by the Senate on March 17, told Wyden and the panel that she would focus on the issue, adding that resolving it would require close coordination between the administration and Congress as well as between USTR and the Treasury Department.

The friction between the United States and its top tech companies and the rest of the world stems from how the global economy has shifted toward a model where companies based in one country earn profits from delivering services to citizens of another country without establishing a physical presence, said Clete Willems, a partner in the law firm of Akin, Gump, Strauss, Hauer & Feld LLP, who served in the White House as a top trade adviser during the Trump administration.

The OECD has been discussing how to determine taxing rights when companies have no physical presence in a country and which companies should be considered digital entities, Willems said.

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“It’s really just this broad conversation about how to allocate taxing rights, of which digital companies are implicated, but from the perspective of the United States, are not the only companies providing services around the globe,” he said.

Even as the discussions have been ongoing since 2018 with no consensus yet on how to allocate taxing rights and define digital companies, 10 countries around the world decided to unilaterally proceed with digital service taxes, defining the threshold in terms of annual corporate revenues that would target U.S. companies while leaving out others.

Amazon a target


The countries that have adopted the digital service tax tend to focus on transactions that would occur on Amazon, for example, while overlooking a similar transaction that could take place on a brick-and-mortar retailer’s website, Willems said.

“If I buy a handbag on Amazon’s website, I’m subject to France’s digital services tax, but if I buy on the Louis Vuitton website, I’m not,” Willems said. “The way the tax is designed is it sort of excludes the brick-and-mortar companies with a digital interface while only applying to the digital companies.”

The Internet Association also has submitted comments to the OECD saying the industry supports the global move to find a solution to “taxation in the digital age,” but the rules must be clear, predictable and “not favor certain sectors or technologies over others.” Foreign and domestic firms in each of the OECD member countries’ jurisdiction should be treated equally and must not be subject to double taxation of profits, the group said.

The OECD and G-20 negotiators have set a deadline to complete negotiations on a global tax regime by the summer of 2021.

U.S. Treasury Secretary Janet L. Yellen in February dropped one of the proposals from the Trump administration to allow top companies such as Amazon, Google, and Facebook to opt out of whatever agreement OECD and the G-20 reach. The Trump administration idea, known as a safe-harbor position, had impeded further negotiations.

The United States “really removed what was the Europeans’ biggest complaint about our negotiating posture, and that means the ball is now in Europe’s court to see if it will show reciprocal flexibility” and modify its position on singling out American companies as well as broadening the definition of digital entities, Willems said.

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