Protesting against decisions by Britain, India and four other countries to impose digital taxes, the US has announced new 25% tariffs against $2 billion of imports from the countries – though for the moment, these import duties are suspended.

New digital taxes from the UK, Italy, Spain, Turkey, India and Austria discriminated against US companies, claims Katherine Tai, the US trade representative. But the new duties, currently suspended for a period of up to 180 days, for now exist mainly as a threat if tax negotiations with the six countries do not go to Washington's pleasure.

Figure 1: Cash grab: The tit for tat tug of war over the Digital Services Tax just keeps on rolling.
(Source: aisletwentytwo on Flickr CC2.0)

Finance ministers from the G7 will meet in the UK on Friday and Saturday to discuss tax negotiations, including tax arrangements for large tech companies based in the US and a US proposal for a global minimum corporate tax.

The move's timing suggests it is meant to apply pressure on the other countries ahead of the meeting, which apart from the UK and US includes Canada, France, Germany, Italy and Japan. If Washington can get an agreement through the G7 in London, it figures, it may have momentum to bring the arrangement to the broader G20 finance meeting in July in Italy.

London calling

With the Biden administration raising the stakes, it hopes to convince other G7 members to craft international tax arrangements to capture the European and Asian earnings of companies like Apple and Microsoft.In particular, Washington is keen to limit how big companies can shift profits to lower-tax jurisdictions like Ireland, which has a 12.5% corporate tax.

Biden has recently suggested 15% as a global minimum corporate tax, down from an earlier 21% in order to bring other countries along.The US recently lowered its to 21%, while the UK has recently increased its rate to 25%.

Ireland's finance minister Paschal Donohoe will also be at the summit, as he also is president of the Eurogroup. Finance ministers will have a full agenda, though, with climate change and the coronavirus response also on the list.

President Biden is also set to meet the Queen, in a trip which is his first foreign engagement as president.

Overcoat taxes at dawn

Brazil, the Czech Republic, the EU and Indonesia were not levied with similar duties, as each of those jurisdictions has considered but not to date implemented a digital services tax (DST). The United Kingdom's DST is "unreasonable and discriminatory and burdens or restricts US commerce," Tai's office said in its notice of action against Britain.

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Tai's agency says it had considered whether the DST diverged from what Washington considered to be fair principles of taxation. These included "extraterritoriality, taxing revenue not income, and a purpose of penalizing particular technology companies for their commercial success."

Death and taxes

UK goods which would now attract tariffs ranged from overcoats, footwear, cosmetics and clothing, totaling $886 million in value. That amount was chosen to equal the amount of digital taxes the UK would collect from US firms.

Italian handbags, clothing and optical lenses worth $386 million would attract 25% tariffs from that country. Spanish goods worth $323 million and Turkish ones valued at $310 million rounded out the list, along with Indian ones at $118 million and Austrian imports at $65 million.

France would have been included in the list, but the move was suspended in January to permit further negotiations. Meanwhile, Canada has been eyeing a 3% digital services tax too, with the Parliamentary Budget Officer suggesting the measure could raise $4.23 billion Canadian dollars ($3.50 US dollars) in five years.

There may not be much uniting the US's two political parties, but a distaste for DSTs in other jurisdictions is top of a short list.

There are now "two points of bipartisan agreement here in the US: digital services taxes discriminate against US businesses, and UFOs warrant further investigation," joked Tax Notes Chief Correspondent Stephanie Johnston on Twitter.

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— Pádraig Belton, contributing editor special to Light Reading