Report from Bloomberg
In Brief – The Culture Minister of Friedrich Merz’s German Government has revealed that they are drafting legislation for a national digital services tax (DST) targeting the biggest internet companies operating in country, in particular US giants Google and Meta. It could be a 10% tax on the advertising revenues of the largest digital platforms, which would be double the rate in Austria, which has been cited as a model DST, more than three times the rate in France, which was the first DST in Europe, and five times that in the UK. During his first term, President Trump fought European digital taxes with tariff threats, pressuring countries to delay their implementation, but President Biden took a different tack. Many countries began to collect digital tax revenues pending implementation of a tax deal negotiated by the Biden Administration at the OECD. That deal was never approved by the US Congress, President Trump disavowed it when he reentered the White House, and eliminating national DSTs has been a trade policy demand of the Trump Administration’s linked to their reciprocal tariffs campaign.
Context – US Treasury Secretary Scott Bessent singled out eliminating DSTs, which he called “an unfair tax on one of America’s great industries,” as a priority for US-EU trade talks. Ironically, he mentioned differences between EU member states, for example France as a DST leader while Germany has not had one, as something for the EU to work out. He probably didn’t mean Germany should get their own DST. Preemptively imposing high tariffs on so many countries, irrespective of DST status, has somewhat undermined their usefulness to restrain the taxes. For example, while India, Brazil, and Italy have expressed a willingness to step back on DSTs, the UK did not address their tax in their US trade deal, and Poland, like Germany threatened more. However, the US is really upping the ante with a hugely threatening provision in the House-passed tax and budget bill that would increase US income taxes by up to 20% on business and passive income of non-US individuals, corporations and sovereign entities based in countries that impose an “unfair foreign tax” on US companies, including DSTs.