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US opens probe into countries planning Big Tech taxes

New digital tax may cause new trade war

The US trade representative is launching an investigation into Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey and the United Kingdom for implementing or planning to put forward new taxes on digital giants.

The move will put pressure on other nations planning higher duties on tech giants — such as Facebook, Google and Amazon — have raised fears of a new trade war.

France was the first major economy to pass a digital services tax. However, after threats from theUS that it would charge more from French exports, Paris decided to postpone the charge until 2021. Although the US is committed to supporting some aspects of a digital tax if the plan would be voluntary rather than compulsory for American companies, it is now opening probes into nations planning higher duties on tech giants.

New of investigations of a number of EU and non-EU countries on Tuesday sparked division between the U.S. and France before, and it could ultimately mean higher tariffs for these countries. To mitigate further escalation, the Organization for Economic Cooperation and Development (OECD) has been working on a plan that would bring together the US, France and other countries over how to tax digital firms.

The OECD is due to present a plan by the end of 2020. France has said that if international talks fail, tech firms will still have to pay the tax.

“If the US continues with its objective of making the tax voluntary, an agreement is very unlikely, so the move puts pressure in these markets as to whether they’ll want to stick with [the tax] if tariffs are introduced,” Dexter Thillien, a senior industry analyst at Fitch Solutions, told CNBC on Wednesday.

Many countries are desperate for fresh cash as the coronavirus crisis has brought new challenges. The European Commission said last week the bloc should implement a new duty on tech giants as a way to increase revenues at a time of severe economic difficulty.

Brussels has previously criticized the 9.5% tax rate digital companies pay in the EU compared to 23.2% for traditional businesses. Tech giants have argued that they pay as much tax as they are legally obliged to and higher taxes may result in a new trade war.

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Galina Mikova

Galina is a Hubspot-certified Technical Writer with over 10 years of experience in working with Fortune 500, private investment, banking, FOREX and niche tech companies as well as crypto and blockchain startups. She has a solid background in FinTech and blockchain technology.