U.S. President Donald Trump Could Retaliate Against Digital Service Taxes
U.S. President Donald Trump has proposed a provision in a tax bill that would give his administration the power to impose retaliatory taxes on foreign countries that impose special digital service taxes on large U.S. technology companies like Amazon and Alphabet.
Representative Ron Estes, a Kansas Republican who helped craft the provision, stated, "If foreign countries want to come into the United States and tax U.S. businesses, then those foreign-based businesses ought to be taxed as well."
Some 17 countries in Europe and around the world have already imposed or announced such taxes on U.S. tech products, including Meta’s Instagram. Germany previously announced it would impose a 10% tax on platforms like Google.
The provision, which could raise $116 billion over the next decade, has divided political parties in Washington. Democrats who generally oppose the tax bill have not spoken out against this retaliatory tax provision, which is contained in Section 899 of the 1,100-page bill.
The U.S. Constitution gives Congress, not the president, the power to decide on taxes and spending. Democrats broadly oppose the Republicans’ tax and spending bill, which advances many of Trump’s top priorities such as an immigration crackdown, extending Trump’s 2017 tax cuts, and ending some green energy incentives.
This new Section 899 provision would allow the Treasury Department to label foreign tech taxes "unfair" and place the country in question on a list of "discriminatory foreign countries." Once on the list, a country’s individuals and companies operating in the U.S. could face stiffer tax rates that could increase each year, up to 20 percentage points.
Experts suggest that Section 899 could help reduce trade imbalances by discouraging foreign investment, which could depolarize the U.S. dollar and increase exports of U.S. products by making them cheaper overseas. However, others warn that taxing foreigners could quell foreign investment in the U.S. or cause foreign investors to change their behavior and invest elsewhere completely.
The new approach follows earlier negotiations called for by the Democratic administration of former President Joe Biden, which Republicans, led by Representative Jason Smith of Missouri, opposed for separate reasons.
