Report from Bloomberg
In Brief – US Treasury Secretary Scott Bessent singled out national Digital Services Taxes (DSTs) imposed by some EU member states on the largest digital companies, who are most often US-based, as something the Trump Administration wants to address in trade negotiations that could reduce the level of tariffs that the Administration will impose on EU exports. “We want to see that unfair tax on one of America’s great industries removed,” Bessent said. Referring to the fact that some EU member states like France have national DSTs while others like Germany do not, Bessent added, “They have some internal matters to decide before they can engage in an external negotiation.”
Context – During the first Trump Administration, France created the first DST to increase taxes on the biggest internet businesses. 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 two executive orders signaling that he opposed the OECD plan and would again aggressively fight foreign DSTs with retaliatory tariffs. And a further White House directive even more broadly threatens trade retaliation, covering 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.” However, in the meantime, President Trump imposed large “reciprocal” tariffs on scores of countries around the world, including the EU, and then paused their application for 90 days to allow for trade talks that could result in agreements to lower trade barriers to US exports. India, Brazil, and Italy are examples of countries signaling a willingness to step back on DSTs, while Poland is moving forward. The states of Minnesota and Washington are pursuing state variations of DST-type levies despite the fact that they likely violate the federal Permanent Internet Tax Freedom Act because the states do not impose equivalent taxes on non-digital versions of the services.