Background on Section 301 Digital Service Taxes
In 2020, the United States Trade Representative (“USTR”) initiated Section 301 investigations with respect to certain Digital Service Taxes (“DSTs”) being adopted or under consideration by a number of countries. DSTs are taxes on revenues that certain companies generate from providing certain digital services to users in those jurisdictions. According to USTR, available evidence suggests that DSTs are expected to target large, U.S.-based technology companies.
Section 301 of the U.S. Trade Act of 1974 authorizes the President to take all appropriate action including tariff-based and non-tariff-based retaliation to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce.
Accordingly, in early January 2021, USTR determined that certain countries’ DSTs were, in fact, unreasonable or discriminatory and burdened U.S. commerce. These countries included India, Italy, Turkey, Austria, Spain, and the United Kingdom. However, USTR has terminated DST investigations of Brazil, the Czech Republic, the European Union, and Indonesia after finding that these jurisdictions either have not adopted or not implemented a DST during the period of investigation. The reason for this termination is that USTR must make its determination within one year of initiation – or in this case June 2, 2021. However, these countries have only proposed, and have not yet implemented a Digital Service Taxes. Accordingly, USTR has decided to terminate these investigations, and to continue to monitor the creation DST in these countries.
Proposed 25% Duties
In its March 31, 2021 notice, USTR announced that it is moving forward with its DST investigations for the following countries:
USTR is proposing to impose 25% duties on a range of products from each of these countries. The initial proposed list includes a broad range of products including certain clothing, footwear and the like from Italy and Spain, Shrimp from India and Spain, Glassware and ceramics from Austria, Spain, and the UK, welding machines from Austria, industrial robots from the UK and optical goods from Austria. This list is not comprehensive.
Retaliatory tariffs could total almost $1 billion annually. The cumulative annual value of the duties comes to $880 million, according to Bloomberg News calculations, which include the following annual value of duties by country:
- UK – $325 million annually
- Italy – $140 million annually
- Spain – $155 million annually
- Turkey – $160 million annually
- India – $55 million annually
- Austria – $45 million annually
USTR is soliciting public comment on the above proposed actions. To be assured of consideration, written comments should be submitted to USTR by April 30, 2021. USTR requests comments with respect to any issue related to the action to be taken in these investigations. USTR specifically invites comments regarding:
- The level of the burden or restriction on U.S. commerce resulting from these countries’ DSTs, including the amount of DST payments owed by U.S. companies, the annual growth rate of such payments, and other effects, such as compliance costs.
- The appropriate aggregate level of trade to be covered by additional duties.
- The level of the increase, if any, in the rate of duty.
- The specific products to be subject to increased duties, including whether the tariff subheadings listed should be retained or removed,
Additionally, USTR will hold a virtual hearing on these proposed actions on the following dates:
- May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions
- May 4, 2021: Virtual hearing on the United Kingdom DST proposed action
- May 5, 2021: Virtual hearing on the Italy DST proposed action
- May 6, 2021: Virtual hearing on the Spain DST proposed action
- May 7, 2021: Virtual hearing on the Turkey DST proposed action
Although the proposed actions pertaining to India and Austria are covered by the multi-jurisdictional virtual hearing, there is no virtual hearing country-specific for proposed actions pertaining to either of those two countries. In order to directly participate in the virtual hearing a request to appear and a summary of testimony must be provided to USTR by April 21, 2021.
Additionally, USTR is soliciting hearing rebuttal comments. Rebuttal comments for the multi-jurisdictional hearing are due on May 10, 2021, and rebuttal comments for country-specific hearings are due in the days after.
It is important to note that these lists are broader than the lists of products against which retaliation will be taken. USTR will decide which products are subject to retaliation and which products are not subject to retaliation based in large part on the comments and testimony filed in this proceeding. If you are importing a product potentially subject to such duties, it is very important that you file comments explaining why your products should not be selected.
Diaz Trade Law has extensive expertise on Section 301 actions and in preparing and submitting comments for federal rulemaking. Please reach out to us if you would like to submit comments to USTR in order to inform the agency of how to proceed with the DST investigations. If you would like more information on this issue, including a full list of the products proposed for each country, please contact us at your earliest convenience. Diaz Trade Law can be reached at email@example.com and 305-456-3830.