USTR Releases DST Reports for India, Turkey, Italy; No Actions Recommended

The Office of the U.S. Trade Representative is not taxing French cosmetics or handbags, as it wants to have “a coordinated response” to all the Digital Service Tax cases, the agency said Jan. 7. It also released its findings on India's, Turkey's and Italy's proposed DSTs, with no proposed actions.

The office said that the agency “will continue to evaluate all available options.” It also said it would announce the completion of additional DST investigations in the near future. It is also investigating DST proposals from Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain and the United Kingdom.

In the case of India, USTR estimated that its DST could cost U.S. companies more than $30 million a year. “Several aspects of the DST exacerbate this tax burden, including the DST’s extraterritorial application, its taxation of revenue rather than income, and its low domestic revenue threshold (which allows India to tax U.S. firms that do relatively little business in India),” the agency wrote.

In the case of Italy, USTR cited a PricewaterhouseCoopers estimate that Italy's DST would generate €708 million in tax revenue annually, which is about $869 million at today's exchange rates. The report says that due to Italy's design of the tax, “over 62 percent of companies likely affected by Italy’s DST are U.S. companies, whereas less than seven percent of likely affected companies are Italian companies.”

In Turkey, USTR says, the DST tax bill “could exceed US$100 million per year. Several aspects of the DST exacerbate this tax burden, including the DST’s extraterritorial application and its taxation of revenue rather than income.” The authors also noted that Turkey is proposing a 7.5% DST, which is significantly higher than other DSTs. France, for instance, has a 3% rate; India, a 2% rate.

National Foreign Trade Council Vice President for Global Trade and Innovation Jake Colvin responded to the news by saying the reports show “just how discriminatory and destructive these digital services taxes are to U.S. interests and the global economy... . Given this week's announcements by USTR, it will be imperative for the [Joe] Biden Administration and Congress to urgently explore the most effective means to compel these countries to reconsider these damaging policies.”