Report from Reuters
In Brief – Following up on two executive orders from the first day of his second term that signaled he will again aggressively challenge foreign governments that institute a digital services tax (DST), President Donald Trump has ordered his top trade and economic policy officers to revive investigations aimed at imposing retaliatory tariffs on offending countries. However, unlike the first iteration of the standoff, the new directive threatens trade retaliation, including under Section 301 of the Trade Act, for a much broader range of government tax and regulatory policies impacting America’s digital businesses, including taxes, fines, penalties or other burdens 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.”
Context – During the first Trump Administration, France led the way to increase taxes on digital giants. Their DST was designed to hit only the largest internet companies. Several other countries, especially in Europe, followed suit. President Trump argued that the taxes discriminated against the US, dismissing the rationale that DSTs applied to all companies equally and the fact that most of the largest digital companies were US-based was incidental. He responded with tariff threats. The DSTs were delayed, corporate tax reform talks heated up at the OECD, Joe Biden was elected President and changed the US global tax strategy, and countries reached a two-part deal. But the US Congress never implemented the OECD agreement, several countries implemented their DSTs, and Donald Trump returned to the White House. The biggest takeaway from this order is that the tariff threats are now squarely on the table for all regulations, penalties, and fines that primarily impact US tech giants, rejecting the same rationale that it’s an incidental fact that most tech giants are US companies. Penalties and orders under the EU Digital Markets Act are squarely in site, and many other countries are pursuing similar Big Tech policies.