US Weighs Tariff Response to Foreign Digital Services Taxes

The U.S. government is taking decisive actions to protect American technology companies and innovators from foreign governments imposing certain taxes and regulations. US White House published a Memorandum “Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalties”, stating that some foreign governments have chosen to impose disproportionate digital service taxes (DSTs) and regulatory barriers that target American companies. According to Memorandum, these measures threaten U.S. economic interests by transferring revenue and intellectual property abroad, increasing operational costs, and exposing sensitive information to potentially hostile foreign regulators. The administration is committed to ensuring that American businesses are not unfairly burdened by these policies.

Policy Measures

To counteract these challenges, the administration has outlined a policy to address foreign tax and regulatory structures that unfairly penalize U.S. companies. The government will take the following actions:

1. Impose Tariffs and Responsive Measures – Any foreign tax, fine, or regulation that disproportionately impacts U.S. businesses will be met with appropriate countermeasures, including tariffs.

2. Investigate Discriminatory Foreign Taxes – The U.S. Trade Representative (USTR) will reassess previous investigations into the DSTs imposed by France, Austria, Italy, Spain, Turkey, and the UK, initially launched in 2019 and 2020. Additional investigations will target new DSTs imposed by other countries.

3. Review Regulatory Barriers – The administration will examine foreign regulatory practices that restrict U.S. digital companies, including those that limit cross-border data flows, impose network usage fees, and require American streaming services to fund local content.

4. Protect Intellectual Property – Measures will be implemented to prevent foreign governments from leveraging regulatory frameworks to appropriate American intellectual property.

5. Assess Global Competitiveness – The Secretary of the Treasury, Secretary of Commerce, and USTR will jointly evaluate and recommend responses to foreign policies that hinder the competitiveness of U.S. firms in the digital economy.

Agency Responsibilities

To ensure effective enforcement of these policies, several key agencies have been tasked with specific responsibilities:

• United States Trade Representative (USTR): Will investigate foreign DSTs and take necessary actions, including trade measures and dispute resolution mechanisms.

• Department of the Treasury: Will analyze foreign tax practices and determine whether they violate international agreements or U.S. law.

• Department of Commerce: Will collaborate with the USTR to assess the impact of foreign regulations on American businesses and recommend countermeasures.

• Presidential Oversight: The President will receive regular reports on these investigations, ensuring that appropriate action is taken to defend American economic interests.

Ensuring Fair Trade Practices

The administration is also working to secure a permanent global moratorium on customs duties for electronic transmissions. Additionally, a reporting mechanism will be established for American businesses to communicate directly with the USTR about foreign policies that harm their operations.

Source/recommended read: 

• https://www.whitehouse.gov/presidential-actions/2025/02/defending-american-companies-and-innovators-from-overseas-extortion-and-unfair-fines-and-penalties/