A Taxing Issue and a Trade Matter – Digital Services Taxes and Trade

07/09/2020

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WITA

 

On Thursday, July 9th, WITA hosted a webinar with panelists who discussed Digital Services Taxes (DSTs) as an emerging new front in trade disputes and their nexus with trade law and policy.

Webinar Featuring: 

Grant Aldonas, Split Rock International, and former U.S. Undersecretary of Commerce for International Trade

Pamela Olson, PWC, and former Assistant Secretary of the Treasury for Tax Policy

Moderator: Meredith Broadbent, CSIS and former Chairman of the International Trade Commission

 

Summary:

The webinar began with Pam Olson giving a brief overview of international norms when it comes to international taxation, as well as when those norms began to come into question. She then discussed how the debate over these norms led to the OECD project Base Erosion Profit Shifting. This project did not investigate how taxing rights should be allocated due to the U.S. push back, despite taxing rights not being directly on the table, there was certainly under the table discussion of taxing rights in the BEPS project. 

Olson then provided a summary of the U.S.’ 2017 tax reform act and where those tax rules drew their inspiration from, much of which came from the BEPS project. The U.S. and the OECD came to a recognition in 2017 that it was time to reevaluate Digital Services Taxes. Olslon also went over what the U.S.’ current perspectives are on DSTs, including a newfound hesitancy for the OECDs tax proposal due to COVID-19. Olson then emphasized the need for a global agreement given the inconsistencies in DSTs across the globe. 

Meredith Broadbent then followed Olson’s statement asking Olson to go over the politics of the U.S. companies that are most often subject to DSTs.

Grant Aldonas then shifted the focus of the conversation to the impacts of DSTs on trade. Aldonas clarified that DSTs are not income taxes, but taxes on gross revenue. Aldonas stated that these are “tariffs on services” and noted how this is the first time there has ever been a tariff on services. Aldonas then went in depth on the USTR’s Section 301 including how it does not limit the definition of what a trade agreement is. Aldonas discussed how DSTs raise issues based on rules of non-discrimination, specifically with the French, British, and Czech DSTs. He went on further to discuss how India’s taxes violate GATT rules. 

Aldonas concluded his remarks by focusing on the economic harm that comes from DSTs. Aldonas stated that these economic harms should be used to motivate and outline the regulations for DSTs. He also left us with his prediction on what he thinks the future of this problem holds, remarking how he believes it will only metastasize as governments look to widen the tax base, post COVID-19.

The webinar then concluded with a Q & A session that featured questions on domestic interest in DSTs, what companies could be subject to DSTs, DST models and how they differ, and more.