US to India and 5 others: You tax Large Tech, we tariff you

NEW YORK — From Indian basmati rice to Italian handbags to Turkish carpets, the U.S. will impose 25% tariffs on as much as $2 billion worth in goods from six countries in retaliation for their taxation of American digital services, the U.S. trade representative said Wednesday.

But it immediately gave an up to 180-day buffer to see if the matter can be resolved through ongoing negotiations.

The announcement came as the Office of the U.S. Trade Representative concluded its yearlong investigation into digital service taxes adopted by Austria, India, Italy, Spain, Turkey and the U.K., which it deemed discriminatory against American tech companies.

“The United States remains committed to reaching a consensus on international tax issues through the OECD and G-20 processes,” USTR Katherine Tai said in a statement. “Today’s actions provide time for those negotiations to continue to make progress while maintaining the option of imposing tariffs under Section 301 if warranted in the future.”

Similar U.S. reviews of digital tax practice in Brazil, the Czech Republic, the EU and Indonesia, are ongoing.

The move comes as Tai seeks to protect American companies from other countries’ digital-service levies, which Washington says overwhelmingly target American companies such as Facebook and Amazon. Instead, Washington has called for a single international code that unifies tax rates and prevents arbitrary levies.

The dispute between the U.S. — home to many of the world’s largest tech players — and other economies highlights the widening gap among governments on how to levy digital trade due to the lag in international criteria and rules in this growing space.

The Organization for Economic Cooperation and Development is leading negotiations involving about 140 governments to chart standards on digital service taxes. Group of Twenty finance ministers are aiming to deliver agreement on a consensus-based solution by their meeting next month, as part of this global effort.

In response to a growing number of governments introducing a national digital tax, President Joe Biden’s administration sent its own proposals in April to countries involved in the OECD-led discussions on a global tax overhaul.

This includes a scheme to tax the world’s top 100 corporations based on sales in each country regardless of physical presence. Such a system would shift the global tax overhaul conversation’s focus away from tech companies, though companies like Google, Facebook and Amazon would still meet such a threshold. Biden has also advocated for a global minimum corporate tax.

Challenges arising from the digitization of the world economy have also been a thorny issue for the World Trade Organization. WTO’s newly instated Director-General Ngozi Okonjo-Iweala has cited the urgent need to update the organization’s rule book to reflect the prevalence of e-commerce and digital economy.

The U.S. estimates the six countries it sanctioned Wednesday collectively levy $880 million in digital service taxes from American companies annually.

India, for instance, collects a 2% tax on revenue generated in e-commerce services offered in the country, but only on foreign companies. American companies pay an estimated $55 million annually in digital service taxes to the country’s government, according to the USTR.

Indian products targeted by Washington’s retaliatory action this time include agricultural products and jewelry.

In a public comment submitted to the USTR, the Aluminum Association of India urged the Biden administration to either reach an agreement on its global minimum tax proposal or sign a bilateral trade agreement between India and the U.S. to address the digital tax challenge.

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