Report from Politico
In Brief – The framework for a new trade deal between the United States and United Kingdom, which was hailed by both President Trump and Prime Minister Starmer as the first agreement that will forestall much of the tariff increase announced by Trump on April 2nd, does not include a pledge from the UK to remove its digital services tax (DST). The 2 percent tax, imposed in 2020, applies to digital companies generating over $662.37 million globally and $33.12 million from UK users, which primarily impacts major US-based tech companies. Pro-trade groups in the US, including the National Foreign Trade Council, expressed disappointment that the framework agreement did not address the DST issue, labeling it a key trade irritant. US officials continue to criticize DSTs as discriminatory against American companies and said that the Trump Administration would continue to negotiate for the UK to remove the tax as part of the negotiations to finalize the agreement. A British official acknowledged that the US is pushing for changes but that no formal process has been established to resolve the dispute.
Context – During the first Trump Administration, France created the first DST to raise taxes on big internet businesses. Other countries, including the UK, followed suit. President Trump argued they discriminated against US companies and responded with tariff threats. The DSTs were delayed, and talks moved to the OECD. During the Biden years, many national DSTs went into effect. The second Trump Administration came out of the gate with executive orders signaling that he would again aggressively fight foreign DSTs with retaliatory tariffs. However, the ability to employ tariffs as a threat against DST were overtaken in a sense by the US unilaterally imposing massive “reciprocal” tariffs on scores of countries around the world, some with DSTs and some without. India, Brazil, and Italy are examples of countries signaling a willingness to step back on DSTs, while the US Treasury Secretary says that he wants the EU to address the issue in a trade deal, but the EU member states need to arrive at a single position first.