Background

On 21 February 2025, President Trump signed a Presidential Memorandum directing a review and possible renewal of investigations into countries that have implemented Digital Services Taxes (DSTs). The memorandum specifically targets seven countries: France, the United Kingdom (UK), Italy, Spain, Austria, Turkiye and Canada. It also directs his Administration to identify policies of other nations that may discriminate against United States (US) companies or impose burdens on US digital commerce and recommend actions to counteract such policies.

Relatedly, on 20 February 2025, the United States Trade Representative (USTR) opened a public comment period for feedback pursuant to the America First Trade Policy Presidential Memorandum and the Reciprocal Trade and Tariffs Presidential Memorandum.

Detailed discussion

The Presidential Memorandum directs the USTR to review and consider renewing DST investigations under section 301 of the Trade Act of 1974 (19 USC 2411), which were initiated during President Trump's first term, and to examine any additional countries that utilize DSTs in a "discriminatory" manner against US companies. The initial review conducted under Trump's first administration found that DSTs violated trade agreements with the US. Both the Trump and Biden Administrations imposed retaliatory tariffs in response but suspended them pending negotiations on the Organization for Economic Co-Operation and Development (OECD) Pillar One framework. On 20 January 2025, President Trump withdrew the US from global digital tax reform negotiations aimed at establishing taxing rights for cross-border digital services.

Specifically, the memorandum instructs the USTR, in collaboration with the Secretary of the Treasury and the Secretary of Commerce, to identify and counteract "discriminatory" practices affecting US companies. The review will consider the following factors:

1. Taxes imposed on US companies by foreign governments, including those that may discriminate against them
2. Regulations imposed by foreign governments that could inhibit the growth or intended operations of US companies
3. Any act, policy or practice of a foreign government that could jeopardize US companies' intellectual property
4. Any other act, policy or practice that undermines the global competitiveness of US companies

In addition to reviewing whether to renew investigations under Section 301 focusing on the DSTs imposed by France, Austria, Italy, Spain, Turkiye and the UK, the memorandum further details the responsibilities of the USTR:

• To determine whether to pursue a panel under the United States-Mexico-Canada Agreement on the DST imposed by Canada
• Together with the Secretary of the Treasury and the Secretary of Commerce, investigate whether any act, policy, or practice of any country in the European Union or the UK has the effect of requiring or encouraging the use or development of US companies' products or services in ways that undermine freedom of speech and political engagement or otherwise moderate content
• With the Secretary of the Treasury, in consultation with the Secretary of Commerce, determine whether any foreign country subjects US citizens or companies, including, without limitation, in the digital economy, to discriminatory or extraterritorial taxes, or has any tax measure in place that otherwise undermines the global competitiveness of US companies, is inconsistent with any US tax treaty, or is otherwise actionable under Internal Revenue Code (IRC) Section 891, or other tax-related legal authority

The memorandum also calls for the USTR to identify tools to secure a permanent moratorium on customs duties for electronic transmissions among trading partners. In March 2024, the World Trade Organization (WTO) extended the e-commerce customs duty moratorium until 2026, providing a temporary reprieve for digital services companies from potential tariffs. This extension arose amid slow progress in the multilateral e-commerce work program at the WTO. The findings from the USTR's review are expected to be published as part of the America First Trade Policy Memorandum in April 2025.

This action on DSTs follows President Trump's announcement of the "Fair and Reciprocal Plan" aimed at restoring fairness in US trade relationships and countering nonreciprocal trade agreements, specifically addressing DSTs imposed by Canada and France. The USTR has issued a Federal Register Notice requesting comments from interested parties regarding unfair trade practices or nonreciprocal trade arrangements stated as part of the "Fair and Reciprocal Plan." Submissions are due by 11 March 2025. Interestingly, the Federal Register Notice states that the USTR is "particularly interested in submissions related to the largest trading economies, such as G20 countries, as well as those economies that have the largest trade deficits in goods with the United States, including Argentina, Australia, Brazil, Canada, China, the European Union, India, Indonesia, Japan, Korea, Malaysia, Mexico, Russia, Saudi Arabia, South Africa, Switzerland, Taiwan, Thailand, Türkiye, United Kingdom, and Vietnam."

Actions for businesses

The trade environment remains highly volatile. US companies importing goods from the jurisdictions under USTR investigation, or mentioned in the request for comments regarding unfair or nonreciprocal trade, should closely monitor the outcomes and subsequent actions.

During Trump's previous administration, USTR actions included targeting specific categories of goods within certain industry subsectors. If a DST is found to be discriminatory, similar actions may be taken against each implicated jurisdiction. Therefore, as investigations progress, companies should ensure that they fully understand the relevant products, particularly the Harmonized Tariff Schedule of the US (HTSUS) classifications and the country of origin for trade flows between the affected jurisdictions and the US.

For those intending to submit comments regarding unfair or nonreciprocal trade, written comments may be submitted via this link until 11 March 2025: https://comments.ustr.gov/s/.