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

WASHINGTON (Reuters) - The United States is investigating digital services taxes being adopted or considered by Britain, Italy, Brazil and other countries, the U.S. Trade Representative’s office said on Tuesday, a move that could lead to new punitive tariffs and heighten trade tensions.

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

Such taxes are seen by several countries as a way to raise revenue from the local operations of companies including Alphabet Inc's GOOGL.O Google and Facebook Inc FB.O.

“President (Donald) 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.”

The announcement came after the U.S. Commerce Department said it would investigate whether imports of the metal vanadium violate national security, a sign that the Trump administration is actively pursuing new trade barriers despite the coronavirus pandemic.

Trump based his nearly two-year trade war with China on a probe into Beijing’s intellectual property and technology transfer practices under Section 301 of the U.S. Trade Act of 1974, which authorizes action, including tariffs, to end foreign government practices that curb U.S. commerce.

Broad negotiations through the Organisation for Economic Co-operation and Development 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.

Spain’s plans to tax tech companies’ revenues do not discriminate against any country, a government source told Reuters.

The Internet Association industry trade group said the probe was needed since a growing number of countries had proposed or enacted digital taxes despite the OECD negotiations.

“The U.S. must continue sending a strong message to trading partners that targeted discriminatory taxes against U.S. firms are not an appropriate solution,” said the group’s trade policy director Jordan Haas.

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

Reporting by David Lawder; additional reporting by Catarina Demony and Andrea Shalal; Editing by Chizu Nomiyama, Steve Orlofsky and Richard Chang