U.S. moving to impose retaliatory tariffs on countries taxing digital goods
The U.S. plans to enact new retaliatory tariffs on nations that tax digital goods from American internet companies, including those that tax App Store purchases.
Countries that tax App Store purchases may soon face retaliatory tariffs on their physical exports to the U.S.
The Office of the United States Trade Representative (USTR) has proposed tariffs that are approximately equal to taxes that various countries are requiring of international tech companies. Bloomberg estimates that the total annual value of the duties reaches $880 million.
The USTR's retaliatory tariffs would tax imports as much as 25% annually from a list of countries that includes the U.K, India, Spain, Italy, Turkey, and Austria.
The countries currently charge anywhere from a 2% to 5% tariff on digital-services revenue for various online activities. Details vary by country but apply to income from online areas like digital marketplaces, advertising, software-as-a-service, social media, and search engines.
Among the countries imposing digital taxes on U.S. firms, the USTR estimates that the U.K. takes in the most, at $325 million annually.
The retaliatory tariffs would apply to physical imports. They would cover an eclectic range of products, including caviar, fairground amusements, telescopes, and shrimp.
In 2020, Apple warned developers in the Apple Developer Program that it would begin recalculating for changes in global tariffs, potentially impacting developer revenue. At the time, Italy and the U.K had recently added their 3% and 2% digital services taxes on top of their existing value-added tax (VAT). Both countries are included in the USTR's new proposal.
The Internet Association -- an American lobbying group that includes Amazon, Facebook, and Google -- approved of the United States' proposed tariffs. The group released a statement applauding the USTR's action as "an important affirmation in pushing back on these discriminatory trade barriers as the U.S. continues to work to find a viable solution at the OECD."
Apple is not a member of the Internet Association.
The USTR has asked for public comments on its plans. Public hearings for the new tariffs begin on May 4 with the U.K. They continue through the following week, wrapping up with Austria on May 11.
Countries that tax App Store purchases may soon face retaliatory tariffs on their physical exports to the U.S.
The Office of the United States Trade Representative (USTR) has proposed tariffs that are approximately equal to taxes that various countries are requiring of international tech companies. Bloomberg estimates that the total annual value of the duties reaches $880 million.
The USTR's retaliatory tariffs would tax imports as much as 25% annually from a list of countries that includes the U.K, India, Spain, Italy, Turkey, and Austria.
The countries currently charge anywhere from a 2% to 5% tariff on digital-services revenue for various online activities. Details vary by country but apply to income from online areas like digital marketplaces, advertising, software-as-a-service, social media, and search engines.
Among the countries imposing digital taxes on U.S. firms, the USTR estimates that the U.K. takes in the most, at $325 million annually.
The retaliatory tariffs would apply to physical imports. They would cover an eclectic range of products, including caviar, fairground amusements, telescopes, and shrimp.
In 2020, Apple warned developers in the Apple Developer Program that it would begin recalculating for changes in global tariffs, potentially impacting developer revenue. At the time, Italy and the U.K had recently added their 3% and 2% digital services taxes on top of their existing value-added tax (VAT). Both countries are included in the USTR's new proposal.
The Internet Association -- an American lobbying group that includes Amazon, Facebook, and Google -- approved of the United States' proposed tariffs. The group released a statement applauding the USTR's action as "an important affirmation in pushing back on these discriminatory trade barriers as the U.S. continues to work to find a viable solution at the OECD."
Apple is not a member of the Internet Association.
The USTR has asked for public comments on its plans. Public hearings for the new tariffs begin on May 4 with the U.K. They continue through the following week, wrapping up with Austria on May 11.
Comments
How it will be seen outside the US on a political level is something the US will have factored in and accepted, so no issues there either.
The tax imposed are to "stores" that are not in their country to begin with, so there is no diverting of profits to other countries. The country collects a sales tax or VAT from the buyers in their country, on these sales. If the "digital stores" were in the country, like a retail store, then the digital store would be paying a tax on their profits to the country they are located in. And if the products sold were not digital in nature and "imported" over the internet, the country would collect a tariff to import the products that are sold in the retail stores in their country.
Put simply on how this tax is levied, with an example using a retail store in the US. If a person in CA bought an iMac on sale from a retail store in NY, the NY store will collect the CA 9.5% sales tax on the sale and remit it to CA. But the profit they make on the sale is taxed in NY because that''s where the store (and the iMac) are located. But with this tax, it would be like if CA also taxed the NY store a certain percentage of the sale because the store in NY is profiting from a sale made in CA. Even though the iMac was never in CA, until it was shipped to the person that bought it.
And here's the problem with the tax. The tech companies in the US (or whatever country they are located), from where the sales are made, will deduct this tax from their net revenue as a cost of doing business. So the country where they are located will end up collecting less corporate tax on the profit. Which the US will make up by increasing the tariff on products from those countries imposing this tax.
Or developers getting less from each sale. So developers like Epic would not only have to pay 30% to the various app stores for in-app sales, they would also have to pay the UK a small percent of the in-app sales made by Fortnight players in the UK. Spotify and Apple would have to pay the UK a tax to stream music to UK subscribers. So would Netflix with streaming movies. Google would have to pay a tax to the UK, on how much they make placing ads in Google Map for the UK. And so on with any sales involving digital goods. Which will ultimately get passed on to their customers in the form of higher cost for their products.
And actually the stores are in their countries, there are legal entities in the UK, Spain, etc that represent the digital stores, and they operate in those countries under a local legal framework, which for most countries in Europe is stipulated at the EU level. The actual payment processing is the thing that is done in another country (in Europe something like Luxembourg), while the actual profits end up in yet another country (in Europe something like Ireland), where they pay corporate taxes. Since it is hard change that legal framework, because it envolves international agreements, they instead opted to create new taxes, so that this economic activity can be taxed in their countries. It is delusional to think that US companies don’t pay corporate taxes in other countries.
You are still confusing a "digital store" with a physical brick and mortar store. Anyone with the internet do not need to visit a physical store to buy digital goods. Do Epic have a physical store from which Fortnight players can purchase their virtual digital outfits and fancy looking pick-axes? Well, this tax wants to tax Epic on those sales. Apple is already saying that they will collect this tax from iOS developers on in-app purchases, if they have to. Do large developers using app stores over the internet, have a physical store in these countries that are levying taxes on digital goods bought from stores on the internet? And yet, this tax will affect large developers selling digital goods and services.
What this tax is most like is an "internet tax", that our government kept mentioning since the internet boom in the 90's, but kept burying, due to its unpopularity here in the US. Until 2016 where it was buried for good. With an "internet tax", anyone using the internet to sell or buy goods will have to pay an "internet tax" levied by the Federal government. This has absolutely nothing to do with retail stores and how they might be diverting their profits to other countries.
https://en.wikipedia.org/wiki/Internet_tax ;
http://www.dslreports.com/shownews/Congress-Passes-Permanent-Ban-on-Broadband-Taxes-136284
European countries are not like US states, far from it. What the EU does is harmonise some rules, and facilitate business across borders... Countries are sovereign nations and
are free to do a lot of things that a US states cannot do. Having an EU HQ does not mean that multinationals don’t have to pay corporate taxes in different EU countries, even from doing business through the internet, you really should learn a bit more about Europe.
I am not confusing Digital Store with Physical stores. Apple has businesses in some EU countries that handle some of its digital store dealings with local costumers and developers... it’s the payments that are handle is just one country. These digital stores don’t operate in these countries in a vacuum. Being an internet service does not make it legitimate not to be taxed.
Yellen calls for minimum global corporate income tax
“Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids,” Yellen said in a virtual speech to the Chicago Council on Global Affairs. “It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods.”
Eye for an eye, tit for tat or whatever you want to call it.
It would be different if one of the parties was abusing its leverage to make the other buckle under the strain but that isn't the case here. Although the UK and Brexit consequences may see that happening at some point in that particular case. But then again, the UK would have put itself into a weak position, and wilfully.
Every sovereign state has the logical right to manage its trade affairs as it sees fit. Sometimes there will be treaties which may limit the scope of action but they can take their own decisions and live or die (economically speaking) by them.
The US, in this case, obviously has the same right.
Something completely different is an escalation in measures which lead to dramatic changes in the status quo.
In this case the EU/US trade agreement may be impacted but most Europeans would probably celebrate that.
Taxes are applied to profits, not earnings. Even in the UK. If you sold a product for $100 but it cost you $80 worth of material and labor to sell it, you earned $100 in revenue but only pay taxes on the $20 profit. (providing the $80 cost includes rent, electricity, water, gas, security, furnishing and other cost of operating a store from which to sell your product). The average World corporate tax rate is about 25%. So if we use that number, that would come to $5 in taxes on your profit. Or 5% of earnings.
https://www.imore.com/apple-paying-exactly-right-amount-uk-tax-despite-what-youve-read