Fri. Jul 1st, 2022

WASHINGTON—The U.S. said Wednesday it will impose tariffs on the U.K. and five other countries in response to their taxes on U.S. technology companies, but will suspend the levies for six months as it seeks to negotiate an international resolution.

U.S. trade representative Katherine Tai said investigations determined that tariffs were justified because of digital-services taxes imposed on U.S. companies by the U.K., Austria, India, Italy, Spain and Turkey.

She said the tariffs would be suspended while the U.S. focuses on finding “a multilateral solution to a range of key issues related to international taxation.”

She said the U.S. is looking to resolve the issue through the Group of 20 economic powers and other international groups.

The digital-services taxes affect companies such as

Alphabet Inc.

’s Google and

Facebook Inc.,

and have been a flashpoint in the fight over which countries should have taxing rights over the world’s largest companies.

A growing number of countries, many in Europe, implemented such taxes in recent years after expressing frustration at the slow pace of international talks over how to change the global tax system. Those countries have demanded that big tech firms pay more tax in the countries where their clients are located, while the U.S. has resisted changes that would focus only on American tech companies.

In response to the one-off digital taxes, the U.S. had threatened tariffs, beginning with France, raising the risk of a trade war over the issue. But under the Biden administration, there has been progress in multinational talks, and the U.S. has said it would suspend application of its tariffs. The countries that have implemented taxes have said they plan to withdraw them once there is an international deal.

Tech companies have said they support international changes to tax laws, rather than being subject to a patchwork of national taxes.

The U.K. and Austria commended positive momentum in international tax talks. Spain declined to comment, and the other countries didn’t respond to requests for comment.

The proposed U.S. tariffs of 25% would target imports worth nearly $2 billion from the six countries, including imports worth over $800 million from the U.K. and more than $300 million each from Italy and Spain. 

Following investigations initiated against 10 countries in June 2020, the USTR under the Trump administration determined in January that the tax policies of the six countries discriminated against U.S. digital companies and that they were “inconsistent” with the principles of international taxation.

A USTR official said the latest decision was driven by the deadline imposed by the terms of the original investigations and that it was “not an escalatory action.”

The negotiations to find a global solution to technology taxes at the Organization for Economic Cooperation and Development and G-20 are moving quickly, the USTR official said during a media briefing, adding, “We are hoping to see these issues resolved within the next 180 days.”

The hope that an agreement can be secured this year is widely shared. Speaking Tuesday as he started a five-year term as secretary-general of the OECD,

Mathias Cormann

said he was quietly optimistic, in part because of the Biden administration’s fresh commitment to the talks, which had stalled under the previous administration.

“The approach taken by the Biden administration has been a game changer,” Mr. Cormann said. “I very much welcome, and I know that overwhelmingly members welcome, the very positive and constructive engagement of the United States designed to facilitate a consensus in the not too distant future.”

The negotiations will continue in London when treasury chiefs from the Group of Seven industrialized nations, including

Janet Yellen,

meet Friday and Saturday. If they agree to adopt a common stance on the tax overhaul, it will increase the likelihood of an accord at a meeting of treasury chiefs from the Group of 20 leading economies in Venice on July 9 and 10.

According to the Internet Association, a group that represents over 40 global internet companies such as Inc.,

Facebook and Google, U.S. digital exports currently total $517 billion annually, accounting for more than half of the U.S.’s total service exports.

Jordan Haas, the association’s director of trade policy, said during a May 3 hearing that an increasing number of foreign governments are targeting U.S. tech companies. “The scope of these digital-services taxes are specifically designed to go after U.S. digital companies while protecting foreign competitors from the scope of the taxes,“ he said.

Write to Yuka Hayashi at [email protected] and Paul Hannon at [email protected]

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By rahul