Digital service tax investigation

By Jennifer Horvath, Partner, Braumiller Law Group

What Can We Expect?

The primary focus of companies over the past few years has been on the Section 301 China tariffs. However, businesses should be aware of the ongoing Section 301 investigation into digital service taxes  (DST) by certain countries.  On June 5, 2020, the United States Trade Representative (USTR) initiated an investigation into whether actions by Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom were unreasonable or discriminatory and a burden or restriction on U.S. commerce. The USTR indicated that “various jurisdictions have taken under consideration or adopted taxes on revenues that certain companies generate from providing certain digital services to, or aimed at, users in those jurisdictions. They are referred to as Digital Services Taxes or DSTs. Available evidence suggests the DSTs are expected to target large, U.S.-based tech companies.” See 85 FR 34709.

More recently, on January 6, 2021, the USTR released reports on India’s, Italy’s, and Turkey’s digital tax services. Each report outlined the different  DST that the respective country had instituted, and the USTR’s research into each of the DSTs as well. For example, “India’s DST imposes a 2% tax on revenue generated from a broad range of digital services offered in India, including digital platform services, digital content sales, digital sales of a company’s own goods, data-related services, software-as-a-service, and several other categories of digital services. India’s DST explicitly exempts Indian companies—only “non-residents” must pay the tax.” See

On January 12, 2021, the USTR released its determination pursuant to Section 301 specifically towards the DST of India, Italy and Turkey. In short, each report determined that the country’s DST was unreasonable or discriminatory towards U.S. commerce. For instance, the USTR found that “Italy’s DST, by its structure and operation, discriminates against U.S. digital companies, including due to the selection of covered services and the revenue thresholds; and Italy’s DST is unreasonable because it is inconsistent with principles of international taxation, including due to application to revenue rather than income and extraterritoriality; and Italy’s DST burdens or restricts U.S. commerce.” See 86 FR 2477. Because the USTR determined that the actions of the three countries were a burden or restriction on U.S. commerce, it will need to decide what appropriate action to take. This information will be released in a subsequent proceeding under Section 301.

More recently, on January 14, 2021, the USTR released its reports on DSTs by Austria, Spain, and the United Kingdom. After which, on January 21, 2021, a similar Notice of Determination was released for these three countries which found that the DSTs levied by each was a burden or restriction on U.S. commerce. For a complete copy of each report, and the subsequent findings, see As well, the USTR is currently in the process of reviewing DSTs for Brazil, the Czech Republic, the European Union, and Indonesia. It is likely that the USTR will release similar reports and findings within the next few weeks.

Now that the USTR has determined that certain DSTs were a restriction on U.S. commerce, what’s next? It is likely that the subsequent Section 301 proceedings will lead to tariffs or restrictions being placed on the subject countries. This will likely be instituted similar to how a 25% tariff was placed on products of France due to the USTR’s findings that the country’s DSTs were also unreasonable and restrictive to U.S. commerce (also known as the “handbag tax” which has since been suspended by the USTR). While the current investigations only target Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom, it is likely the USTR will continue to make a concerted effort in eliminating DSTs to protect the domestic economy. That being said, companies should review their current import streams to determine how any future Section 301 proceedings and potential tariff impact may affect operations.

For any additional inquiries, or if you would like to discuss  the Section 301 DST investigations in more detail, please contact Jennifer Horvath at