The Made in America Plan may ease global digital tax debate
- On March 31, the Biden Administration released a fact sheet detailing the provisions of the Made in America Tax Plan (the Tax Proposal) alongside the American Jobs Plan, a $2 trillion infrastructure and economy recovery plan. The Tax Proposal consists of significant corporate tax changes aimed to raise over $2 trillion in tax revenue over the next 15 years. The Tax Proposal contains a number of proposals that apply principally to multinational corporate taxpayers, many of which are similar to those proposed by President Biden during his presidential campaign. The proposals include an increase to the US federal corporate income tax rate from 21% to 28%, a revised global intangible low taxed income (GILTI) regime, repeal of the foreign derived intangible income (FDII) regime, and a Multi-lateral global minimum tax agreement and replacement of the base erosion anti-abuse tax (BEAT). The Tax Proposal includes a new anti-profit stripping provision which would deny deductions to foreign corporations on payments out of the US if they are based in a country that does not adopt a strong minimum tax. This measure is intended to replace an anti-profit shifting provision introduced by the 2017 Tax Act. The Tax Proposal suggests that the US could potentially replace the BEAT regime with an anti-abuse measure, known as the undertaxed payments rule, which is part of the “Pillar Two” plan being developed by the OCED. As other countries have been pushing for the US to drop the BEAT provision as part of OECD negotiations, the Tax Proposal to replace the BEAT provision could help ease a point of tension in the global digital tax negotiations.
US Trade Representative proposes 25% tariffs for digital taxes adopted by six countries
- On March 26, the office of the US Trade Representative (USTR) announced next steps of Section 301 investigations of Digital Services Taxes (DST) adopted or under consideration by ten US trading partners. USTR ambassador Katherine Tai stated that the “United States remains committed to reaching an international consensus through the OECD process on international tax issues. However, until such a consensus is reached, we will maintain our options under Section 301 process, including, if necessary the imposition of tariffs.” In January, the USTR found that the DSTs adopted by six jurisdictions unfairly discriminates against US tech companies. The initial estimates indicate that the DST payable by US based company groups in various jurisdictions to be approximately: Austria - $45M, India - $55M, Italy - $140M, Spain - $155M, Turkey - $160M, and the UK - $325M. The USTR is proceeding with the public notice and comment process on potential trade actions, including proposing additional tariffs of up to 25%, against the six jurisdictions to preserve procedural options. For the remaining four jurisdictions that have not yet adopted nor implemented the DSTs - Brazil, the Czech Republic, the European Union, and Indonesia - the USTR is terminating those proceedings. The USTR will continue to monitor the status of DSTs in these jurisdictions and may initiate new investigations, if appropriate.
UK responds to the US Trade Representative tariffs proposal
- In response to the USTR’s announcement, a UK Department for International Trade spokesperson stated that should the US proceed to implement tariffs, “we would consider all options to defend UK interests and industry.” The spokesperson continued, “We’re working positively with the US and other international partners to find a global solution to this problem and will remove the DST when that is in place.”
United States news
Kansas legislature passes marketplace and remote seller collection bill
- On March 30, 2021, the Kansas legislature passed S.B. 50, which would require sales and use tax and transient guest tax collection by marketplace facilitators selling or facilitating the sale of property or services subject to these taxes, as well as set a remote seller tax collection threshold. Marketplace facilitators are required to collect and remit these taxes if, during the current or immediately preceding calendar year: (1) the marketplace facilitator made taxable sales in Kansas exceeding $100,000; or (2) made or facilitated taxable sales, on its own behalf or on behalf of marketplace sellers, for delivery into Kansas in an amount exceeding $100,000. Marketplace facilitators would not be required to collect and remit any of the taxes from sales occurring prior to July 1, 2021. Effective April 1, 2022, marketplace facilitators would also be required to collect and remit applicable prepaid wireless 911 fees. Additionally, S.B. 50 would define a retailer doing business in the state to include remote sellers with greater than $100,000 of cumulative gross receipts from sales to Kansas customers in the current or immediately preceding calendar year. Remote sellers would not be required to collect and remit tax for sales occurring prior to July 1, 2021. S.B. 50 is now pending enrollment and transmittal to the governor for approval.
New York Tax Department concludes online webhosting product not subject to sales tax
- The New York State Department of Taxation and Finance issued an advisory opinion, concluding that a taxpayer’s charges for its online webhosting solution were not subject to sales tax. The customers pay an annual fee for their events (audio and video meetings, conferences, webinars and live presentations) to be hosted and maintained and also for on-demand viewing of the events. The Department concluded that, to the extent that the product facilitates the hosting of events, it is not taxable. The ability to create event pages, build webinar features into events, and control the player/console interface would have been taxable prewritten software, if sold separately. But the features did not cause the entire charge to be taxable because they were provided at no additional charge and were ancillary to the main function of the webcasting and virtual communications product.
New York Tax Department determines taxability of online request for proposal services
- The New York State Department of Taxation and Finance issued an advisory opinion, determining the taxability of two online services sold by a taxpayer relating to government requests for proposal: (1) the procurement service was nontaxable; but (2) the notification service was a taxable information service. The procurement service allowed government customers to create RFPs via the website and release them for distribution to potential bidders. Contractors would then submit proposals through the website. The Department concluded that this service was not taxable because providing customers with the ability to distribute their RFPs is not an enumerated service. The notification service allowed the contractors to identify and respond to more bid opportunities by: (1) constantly monitoring all known government RFP releases; (2) inputting them into its database; and (3) notifying the customers of potentially applicable RFPs. The Department concluded that this service was a taxable information service and the “personal or individual” information exclusion did not apply because the information was derived from a common database.