Report from Reuters
In Brief – The Brazilian government has shelved the plan it announced last September to enact a new tax on big tech firms in 2025. The measure, which was expected to mostly impact US-based digital giants like Amazon, Google, and Meta, was expected to be a Brazilian Digital Services Tax (DST). The decision was reportedly taken to avoid exacerbating trade frictions with the US as the Trump Administration plans to raise tariffs on countries that impose trade barriers on US companies. As part of the President’s “America First” trade policy, he has threatened tariff retaliation against countries that impose digital taxes that disproportionately impact US businesses. The Brazilian government is reportedly going to instead focus its technology policy efforts on advancing digital competition legislation that went to public consultation in January 2024 and targets practices such as “killer acquisitions” and the privileging of a company’s own products or services in search results.
Context – During the first Trump Administration, France created the first DST to increase taxes on the biggest internet businesses. Most were US companies. Other countries followed suit. President Trump responded with tariff threats, the DSTs were delayed, and talks moved to the OECD. The second Trump Administration came out of the gate with executive orders on January 20 opposing the OECD plan led by President Biden and signaling that he would again fight DSTs with tariffs. India, like Brazil, is signaling a willingness to step back on its DST, while Poland is moving forward. If the Brazilian Government does shift its focus to ratcheting up regulation of the same US giants that it had planned to tax, the move may still be used as justification for new US tariffs in line with a further White House directive in March that broadly threatens trade retaliation against any tax or regulatory actions that are “discriminatory, disproportionate, or designed to transfer significant funds or intellectual property from American companies to the foreign government or the foreign government’s favored domestic entities.”