The United States is considering a tax bill provision that would allow the president to impose retaliatory taxes on countries that levy digital service taxes on large US technology companies like Amazon and Alphabet. The provision, found in Section 899 of the 1,100-page bill, aims to counter foreign taxes on US tech products.
Background
Some 17 countries in Europe and others around the world have imposed or announced such taxes on US tech products. Germany recently considered a 10% tax on platforms like Google. These levies have drawn bipartisan ire in Washington, with Republicans and Democrats alike opposing the taxes.
The Provision
Under the bill, Congress would empower the administration to impose tax hikes on foreign residents and companies that do business in the US. The provision could raise $116 billion over the next decade, according to the Joint Committee on Taxation. The Treasury Department would be allowed to label foreign tech taxes “unfair” and place the country in question on a list of “discriminatory foreign countries.”
Once on the list, a country’s individuals and companies operating in the US could face stiffer tax rates, increasing by up to 20 percentage points each year. However, some experts warn that retaliatory taxes could dent foreign investment in the US. “Foreign investors may change their behavior to avoid the taxes in various ways, including potentially by simply investing elsewhere,” said Duncan Hardell, an advisor at New York University’s Tax Law Center.
Implications
The provision is seen as a push back against the 15% minimum global corporate tax deal negotiated by the administration of former President Joe Biden. Republicans opposed that approach, arguing it unfairly benefits Chinese companies. The new approach could help reduce trade imbalances by depreciating the US dollar, making US products cheaper overseas.
The image shows the Amazon logo outside its JFK8 distribution center in Staten Island, New York, on November 25, 2020. The image is relevant as it represents one of the US tech companies that could be affected by foreign digital service taxes.
The House of Representatives narrowly passed the bill on May 22, and it now heads to the Senate. It remains unclear whether the Treasury Department would actually use the new authority if it becomes law or if the mere threat of action would convince other countries to change course.
