Digital Services Tax: Lessons from the Section 301 Investigation

This material was first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 5AQ, in the British Tax Review (2021), issue 1, as "Digital Services Tax: Lessons from the Section 301 Investigation" and is reproduced by agreement with the publishers

34 Pages Posted: 1 Jun 2021

See all articles by Chris Noonan

Chris Noonan

University of Auckland - Faculty of Law

Victoria Plekhanova

Massey University - Massey University Auckland

Date Written: March 1, 2021

Abstract

The UK recently enacted a digital services tax (DST) notwithstanding the strong US response to the French DST and the commencement of an investigation into the DST proposals of other countries under section 301 of the Trade Act 1974 (TA 1974). A DST is not a tax on income or capital. While falling outside of most obligations in double taxation agreements (DTAs), it will need to comply with the enacting state’s obligations under the WTO and preferential trade agreements applicable to indirect taxes, in particular, the obligation not to discriminate against like services or service suppliers. A well-designed DST should pass muster under tax and trade agreements. Addressing any possible breach of trade rules is unlikely to see an end to opposition and threats of trade sanctions. The section 301 process, dubbed “aggressive unilateralism”, should be understood as primarily a political rather than a judicial process. The statute seeks to secure an advantage for the US in international economic negotiations. History suggests some clear limits to the statute’s utility in encouraging policy changes abroad. This article assesses the French and UK DSTs in the light of the report of the United States Trade Representative (USTR) on the French DST. Appreciating these limits is important to all countries contemplating the political consequences of introducing a DST.

Keywords: digital services tax, DST, section 301 of the Trade Act 1974

JEL Classification: K34, K33

Suggested Citation

Noonan, Chris and Plekhanova, Victoria, Digital Services Tax: Lessons from the Section 301 Investigation (March 1, 2021). This material was first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 5AQ, in the British Tax Review (2021), issue 1, as "Digital Services Tax: Lessons from the Section 301 Investigation" and is reproduced by agreement with the publishers, Available at SSRN: https://ssrn.com/abstract=3856695

Chris Noonan

University of Auckland - Faculty of Law ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

Victoria Plekhanova (Contact Author)

Massey University - Massey University Auckland ( email )

Private Bag 102904
North Shore Mail Centre
Auckland, 0745
New Zealand

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