Dive Brief:
- President Donald Trump on Friday signed a memorandum that paves the way for the U.S. to retaliate against nations that impose global “digital services taxes.”
- Where such taxes are enacted by a foreign government, the Trump administration will respond with tariffs “to mitigate the harm to the United States and to repair any resulting imbalance,” the president said in his memo.
- “Beginning in 2019, several trading partners enacted digital services taxes (DSTs) that could cost American companies billions of dollars and that foreign government officials openly admit are designed to plunder American companies,” he said.
Dive Insight:
The move is the latest in a flurry of tariff-related steps by Trump since his inauguration in January.
Friday’s memo directs the head of the U.S. Treasury Department, in consultation with the U.S. Commerce Department chief and the U.S. trade representative, to determine whether any foreign country is subjecting U.S. citizens or companies to discriminatory or extraterritorial taxes in the digital economy or elsewhere.
Digital services taxes apply to gross revenues derived from digital services provided by multinational companies.
Critics of the taxes include the Computer and Communications Industry Association, a technology industry trade group whose members include Amazon, Google, Apple and Meta.
“DSTs typically use high thresholds and narrow service definitions to single out multinational firms that provide digital services to consumers, often disproportionately impacting U.S. companies by design,” Gabriel Delsol, CCIA’s trade policy manager, said in a January article.
About 30 countries have adopted or proposed such taxes in recent years, including key U.S. trading partners such as France, Italy, Spain, Canada, and the U.K., according to the article. “Justified by assertions that large foreign firms weren’t paying their ‘fair share’ for the privilege of accessing a market (despite the fact that firms were taxed in their home jurisdictions) these discriminatory taxes on U.S. firms have surged, starting in 2019,” Delsol wrote.
In 2021, members of the Organization for Economic Co-operation and Development/Group of 20 Inclusive Framework, including the U.S., agreed on a plan to update the global tax system and develop an international digital tax framework. In 2023, 138 out of 145 framework members agreed to hold off on imposing digital services taxes until at least 2025 to allow for additional negotiations. But Canada objected, saying that it would not support a moratorium without a “firm and binding” implementation timeline.
Last year, Canada adopted a 3% digital services tax — retroactive to Jan. 1, 2022 — on revenues of large digital services providers such as those active in online marketplaces and social media platforms. The tax also applies to the sale or licensing of user data.
Covered digital services providers must make their first tax payments under the new law by June 30. They were required to register with the Canadian Revenue Agency by Jan. 31.
In 2023, while the new tax was under consideration, Canada’s Parliamentary Budget Office estimated that it could raise CA$7.2 billion ($5.1 billion) in revenues for the country over five years.
