Digital Services Tax

For importers of select commodities from Austria, India, Italy, Spain, Turkey, and the United Kingdom, public comments are due by April 30th as to why selected products of these countries shouldn’t be subject to a 25% ad valorem Section 301 trade remedy duty in the fight over digital services taxes.

This investigation dates back to last year when several countries or regions sought to impose taxes on US tech companies that generated revenue. But they instead book the taxes in another location where their corporate taxes are far less. To get rid of this “tax-haven shopping,” countries announced their plans to impose additional taxes on these companies.

In June of 2020, USTR Robert Lighthizer opened an investigation into ten such countries or regions. Following their research and receiving public comments and testimony in hearings, the finding was affirmative but pared the list back to six. Removed from the investigation were Brazil, the Czech Republic, the European Union, and Indonesia.

There is a global effort underway through the Organization for Economic Cooperation and Development to agree to a minimum corporate tax structure that would end this domicile shopping. A shift in policy from voluntary compliance sought by the previous administration announced in late February by Treasury Secretary Yellen appears to have paved a way forward in those negotiations.

Unfortunately, the OECD’s 140 members have yet to reach an accord. The affirmative finding in early January meant that how to proceed was left to the incoming administration.

USTR Katherine Tai’s office announced in late March their intent to impose 25% ad valorem Section 301 duties on products from the six remaining countries on a mix of products whose total value would be equal to the expected tax liability would be for each country.

As is often the case with such decisions, they are targeted to be maximally impactful and bring the offending party to the table to negotiate and resolve the dispute.

To be certain, the proposed list of products has focused the attention of exporters from those countries and American importers. The partial list includes Indian bedroom furniture, Spanish handbags and footwear, Turkish carpets and jewelry and UK makeup, overcoats and footwear.

Sobel Network Shipping has the proposed HTS numbers and can advise clients who import from these six locations whether or not they face additional duty exposure to these proposed actions.

Sobel Network Shipping has the proposed HTS numbers and can advise clients who import from these six locations whether they face additional duty exposure to these proposed actions.

We recommend the following four things for companies seeking to weigh in with the US government on their proposed actions.

Submit comments for the record to USTR. Visit regulations.gov and enter the docket number of the case, USTR2020-0022. The deadline to submit comments is Friday, April 30th.

Contact your industry’s trade association to ask if they are submitting comments and request to become a signatory or participate in their response.

Contact your members of Congress in both the Senate and House to inform them of the adverse impact this could have on your business and, most importantly, the jobs of constituents in their districts.

 We will continue to monitor the issue as it proceeds, and when an outcome is reached, we will advise our customers what steps to take next, if any.

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