As U.S. policy discourse seems tuned into other foreign and domestic issues, countries around the world are increasingly pursuing harmful digital services taxes (DSTs) and regulations targeting American companies. Not only are new DSTs cropping up, the size and scope of these discriminatory regimes are expanding aggressively.
With DSTs targeting gross revenue instead of profits, the consequences of even seemingly low rates could amount to dramatic effective tax rates. Many American tech companies earn some revenue abroad but generate most of their annual profit domestically. Local tech companies are generally carved out of DSTs by design through highly specific global gross revenue thresholds.
Fortunately, some in Congress are choosing to focus on these developments even during a busy legislative season. On June 5, a bipartisan group of representatives led by Rep. Ron Estes (R-KS) and Rep. Suzan DelBene (D-WA) introduced a resolution calling on countries to cease and desist from implementing DSTs.
The resolution highlights specific countries with DSTs already in place, as well as two actively pursuing DSTs: Poland and Belgium. These countries exemplify current trends in DSTs perfectly, with one broadening its existing regime and one proposing a new regime. Poland is currently drafting legislation to hike its DST rate from 1.5% to 3% that includes a lengthy list of activities counting as taxable digital services. Belgium, which does not currently have a DST regime, is considering legislation that would implement a 3% DST beginning in 2027.
In other parts of the world, countries are getting creative with DST proposals to fund politically slanted pet projects. Australia recently rolled out draft legislation to impose a DST that would essentially shake down foreign tech companies to pay for select local news outlets. The proposal is so blatant in its coercive intent that it is being called the News Bargaining Incentive.
Australia’s News Bargaining Incentive would punish companies for the actions taken by local news. When local news outlets voluntarily choose to post their content online, the platforms they post to will be required to enter an agreement with them to pay for their content. If an agreement is not reached, the platform will face a 2.25% DST. Even if most major platforms do contractually agree to pay for content that local news outlets voluntarily post, the DST does not go away; companies would instead face a slightly reduced rate of 1.5%.
Meanwhile, Germany is also threatening to extort “voluntary” payments from American tech companies or subject them to a 10% DST. Recent news indicates that, while some German legislators are hesitant to move forward with such a rash proposal, others suggest implementing DSTs through the European Union’s so-called “trade bazooka.” The Anti-Coercion Instrument was adopted by Europe in 2023 to combat China and allows the region to impose any number of discriminatory trade barriers on individual, corporate, or government entities.
The resolution recently introduced in Congress shows that U.S. policymakers will not sit back while foreign countries unfairly and arbitrarily target American companies. Meanwhile, the Trump Administration is working to ensure that Organization for Economic Cooperation and Development (OECD) countries adhere to an agreement to not impose discriminatory global minimum taxes on U.S. companies.
Ongoing trade negotiations between the Trump Administration and foreign counterparts could also be an important avenue to stop DSTs. If calls within Europe to invoke the trade bazooka grow louder, the Trump Administration may need to go back to the negotiating table to discuss whether the bloc is upholding the spirit of its trade agreement signed less than a year ago.
The United States should also avoid adopting policies that serve as a convenient pretext for DSTs. For example, the U.S. Trade Representative (USTR) has launched a far-reaching investigation under Section 301 of the Trade Act of 1974, alleging that other nations’ trade surpluses may indicate unfair “excess capacity” that burdens commerce. This is not necessarily the case on either side of the ocean. Last year, U.S. exports of telecommunications, computer, and information services exceeded imports by 25%. Policymakers in Washington, DC, should not inadvertently encourage foreign governments to adopt the view that trade surpluses justify harsh restrictions on U.S. services providers.
As foreign governments continue to push the envelope in their efforts to extract revenue from American firms, policymakers must continue to call out discriminatory behavior and unfair trade practices abroad. Left unchecked, increasingly radical proposals could cause real damage to the American economy.