The Asia Internet Coalition (AIC) has submitted comments to the United States Trade Representative (“USTR”) on the investigations into digital services taxes under Section 301 of the 1974 Trade Act. We commend this initiative by USTR and understand the concerns related to DSTs that are adopted or under consideration by the jurisdictions covered in the investigation. We have been actively involved in regular industry submission and dialogues on the regulations concerning digital taxation in Asia, detailed submissions on which can be found here.
The digital tax measures under investigation threaten to erode the U.S. tax base and undermine established international principles of taxation. The proliferation and expansion of these measures also threaten a growing number of innovative companies that are in parallel working with the governments on post-pandemic economic recovery efforts.
Unilateral DST measures threaten to undermine the existing international tax framework, which for decades has provided stability and predictability to tax administrators and taxpayers. This framework is based on nexus rules for the taxation of business income grounded in physical presence and on profit allocation rules based on the arm’s length principle (ALP). These DSTs are not income taxes and are not consumption-based taxes such as a Goods and Services Tax (GST) or a Value-Added Tax (VAT), but DSTs constitute the third level of tax that is imposed on companies based on gross receipts. The proliferation and variation of these measures introduce significant uncertainty into the tax system.