Tax News & Views International Weekly: Digital Tax Trade War

President Trump last week issued an executive order restarting long-delayed U.S. Trade Representative investigations into digital services taxes enacted by many countries around the world--including our current frenemy to the north, Canada.

This was an expected move that's only the latest in a long-running saga that began during Trump's first term. It's technically unrelated to the global minimum taxes which his administration is also threatening to fight with retaliation--although both policies are connected to an Organization for Economic Cooperation and Development project to overhaul the global tax rules.

Countries in Europe and elsewhere first considered the levies in 2017 amid anger over alleged low tax compliance among multinational corporations in the tech sphere, especially among those with online-only products which could avoid traditional tax rules based on physical presence. In theory, the DSTs were temporary measures to plug the holes until a more comprehensive solution could be found. They target revenue--not income--of certain online activities such as data collection or advertising, and subject it to a tax rate of 3% or more.

The U.S. took the position that these taxes were targeted at the dominant U.S. technology industry, were discriminatory, and were outside the norms of global taxation. Focusing on France's DST, Trump began the process to enact retaliatory tariffs against the country in 2019, targeting key industries such as wine and fashion. Those tariffs were delayed as the U.S. and other OECD members sought a consensus solution, which became Pillar One of the "Two-Pillar Approach." With Pillar One now all but dead, Trump appears ready to pursue the tariff route again.

Opposition to DSTs is about as bipartisan as an issue gets in today's Washington. But not everyone agrees on the best route ahead. And with Trump threatening an array of tariffs against countries around the world, it's unclear whether this latest investigation will get much notice, or whether it can force widespread DST repeal.

Some other international tax items from the past week

Trump Threat to Double-Tax Foreigners Runs Up Against Treaties – Lauren Vella, Bloomberg Tax ($):

An untested tool in President Donald Trump’s arsenal that would allow him to double taxes on foreign companies and individuals in retaliation for “discriminatory” taxes on US companies is likely to hit a legal snag—US double-tax treaties.

Practitioners said such treaties would take legal precedence over Section 891 of the tax code. Trump mentioned exploring use of the levy, enacted in 1934, in a few communications, including a Feb. 21 memo.

OECD Issues Consolidated Amount B Transfer Pricing Report – Stephanie Soong, Tax Notes ($):

The OECD has published a document that consolidates the report on the amount B transfer pricing simplification approach with related materials released throughout 2024, including a model competent authority agreement (CAA).

The report, released February 24, updates the original amount B report issued in February 2024 that was incorporated as an annex to Chapter IV of the OECD transfer pricing guidelines. The OECD inclusive framework on base erosion and profit shifting later approved the release of further guidance in June 2024 and the model CAA in September 2024.

Reading The Tea Leaves On Mexico, Canada And China Tariffs – Jeff Bialos, Ginger Faulk and Nick Hillman, Law360 Tax Authority ($)

Whether or not the 30-day delay in the imposition of the tariffs on Canadian and Mexican imports will result in negotiated resolutions or the imposition of tariffs depends on a range of factors, including the outcome of ongoing negotiations and whether the Trump administration intends to utilize the revenues from the duties to shore up border security or replace revenue from tax cuts elsewhere in the budget.

Earnings Calls Are Disappointingly Quiet on Pillar 2 – Martin Sullivan, Tax Notes ($):

We are disappointed to find that in their recent earnings calls, most companies are not saying much about the specific effects of pillar 2. Below we have distilled comments from those relatively few cases in which useful information has been provided. For the calls that do address the implementation of pillar 2, the predicted quantitative effects vary widely.

Wealth Tax Backed by French Lawmakers Is Panned by Government – Tara Patel, Bloomberg Tax ($):

The minister reiterated President Emmanuel Macron’s longstanding policy that the country’s business community wants political, economic and fiscal stability, and that when taxes are too high, the wealthy choose to leave the country.

“Fiscal stability isn’t to create new taxes,” she said. “There will be mechanisms to ensure that those who steadfastly avoid taxes or don’t pay taxes on revenue that is from private income will be taxed.”

Expatriate Tax Burdens Get a New Focus – Nana Ama Sarfo, Tax Notes ($):

On January 30 Senate Finance Committee Chair Mike Crapo, R-Idaho, and ranking member Ron Wyden, D-Ore., released a wide-ranging discussion draft of the Taxpayer Assistance and Service Act, which seeks to improve IRS administration and procedure. The 163-page draft covers a wide array of topics, including tax administration, customer service, judicial reviews, and appeals. Most of its suggestions are based on recommendations that the national taxpayer advocate has made. International tax practitioners — and U.S. taxpayers living abroad — will be happy to see that one portion of the draft is devoted to expatriates.

Public Domain Superhero of the Week

A feature from my prior newsletter, brought back by popular demand—every week, a new character from the Golden Age of Comics, which has lost its copyright after falling into disuse. A deep dive into some of the most bizarre heroes and villains ever conceived!

This week’s entry: Moon Girl.

Debut Year: 1947

Creator: Johnny Craig, Gardner Fox, & Sheldon Moldoff

Debut Publication: Moon Girl and the Prince

Origin Story: A princess from a remote mystical kingdom, she possesses a “moonstone” that makes her invincible, which she uses to fight evil-doers in America.

Superpowers/Special Attributes: Her stone also gives her superpowers and makes her “superior to any man,” and allows her to telepathically control her “moonship.”

Eide Bailly's International Tax Team and our affiliates at HLB, the Global Advisory and Accounting Network stand ready to help with your worldwide tax planning and compliance needs.

Tax News & Views International Weekly: Digital Tax Trade War

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