U.S. launches trade probe into digital taxes, plowing ground for new tariffs

FILE PHOTO: U.S. Trade Representative Robert Lighthizer listens as U.S. President Donald Trump meets with Bahrain Crown Prince Salman bin Hamad Al Khalifa during a meeting in the Oval Office of the White House in Washington, U.S., September 16, 2019. REUTERS/Al Drago

WASHINGTON (Reuters) – The U.S. Trade Representative’s office said on Tuesday it was launching a “Section 301” investigation into digital services taxes adopted or under consideration by a number of U.S. trading partners – a move that could lead to new punitive tariffs.

“President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” U.S. Trade Representative Robert Lighthizer said in a statement. “We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”

Announcement of the probe came just hours after the U.S. Commerce Department said it would investigate whether imports of the metal vanadium violate national security, signaling that the Trump administration is actively pursuing new trade barriers despite the coronavirus pandemic.

U.S. President Donald Trump based his nearly two-year trade war with China on a Section 301 investigation into Beijing’s intellectual property and technology transfer practices.

Several European countries are considering such a digital-services tax to raise revenue from the local businesses of companies including Google and Facebook.

Broad negotiations through the OECD to set a global standard for digital taxes have proven elusive, and the coronavirus pandemic has slowed them down.

In a Federal Register notice, the USTR said the probe would cover digital services taxes adopted or under consideration by Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey and Britain. The trade agency said it has requested consultations with these governments.

The USTR said the investigation would initially focus on whether the taxes discriminate against U.S. companies, are unfairly retroactive and “possibly unreasonable” in that they diverge from international norms.

“These departures may include: extraterritoriality; taxing revenue not income; and a purpose of penalizing particular technology companies for their commercial success,” the USTR said in the notice.

Reporting by David Lawder; Editing by Chizu Nomiyama and Steve Orlofsky

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