US President Donald Trump would have the power to retaliate against countries that impose special digital service taxes on large US technology companies like Amazon and Alphabet, under a provision in the sweeping tax bill that Congress is considering.
“If foreign countries want to come in the United States and tax US businesses, then those foreign-based businesses ought to be taxed as well,” said Representative Ron Estes, a Kansas Republican who helped craft the provision.
Some 17 countries in Europe and others around the world impose or have announced such taxes on US tech products like Meta’s Instagram. Germany announced on Thursday it was considering a 10 per cent tax on platforms like Google.
The levies have drawn bipartisan ire in Washington. Democrats who oppose much of the tax bill have not spoken out against the retaliatory tax provision, found in Section 899 of the 1,100-page bill.

Mr Trump has been pressing foreign countries to lower barriers to US commerce. Under the bill, Congress would empower his administration to impose tax hikes on foreign residents and companies that do business in the US The US Constitution gives Congress, not the president, the power to decide on taxes and spending.
The provision could raise US$116 billion (A$180.3 billion) over the next decade, according to the Joint Committee on Taxation. But some experts warned that an unintended consequence of retaliatory taxes could be less foreign investment in the US.
“This new Section 899 provision brings a sledgehammer to the idea that the United States will allow itself to be characterised as a tax haven by anyone,” said Peter Roskam, former Republican congressman and head of law firm Baker Hostetler’s federal policy team.
The House of Representatives narrowly passed the bill on May 22, and it now heads to the Senate. Democrats broadly oppose the Republicans’ tax and spending bill, which advances many of Mr Trump’s top priorities such as an immigration crackdown, extending Mr Trump’s 2017 tax cuts and ending some green energy incentives.
Section 899 would allow the Treasury Department to label the foreign tech taxes “unfair” and place the country in question on a list of “discriminatory foreign countries.” Some other foreign taxes also would be subject to scrutiny.
Once on the list, a country’s individuals and its companies that operate in the US could face stiffer tax rates that could increase each year, up to 20 percentage points.
Monetary Macro chief investment officer Joseph Wang said Section 899 could help Trump reduce trade imbalances because if foreign investment decreases it could depreciate the US dollar. This in turn could spur exports of US products by making them cheaper overseas.
Portfolio interest would remain exempt from any tax Trump imposes, but some experts cautioned that taxing foreigners could quell foreign investment in the U.S.
“Foreign investors may change their behavior to avoid the taxes in various ways, including potentially by simply investing elsewhere,” said Duncan Hardell, an advisor at New York University’s Tax Law Center.
Wall Street analysts also predict this tax provision could pick a fight over foreign capital.
Push-back to global minimum tax
The new approach follows the 15 per cent minimum global corporate tax deal negotiated by the administration of Democratic former President Joe Biden. Republicans, led by Representative Jason Smith of Missouri, chairman of the House tax committee, opposed that approach, arguing it unfairly benefits Chinese companies.
Foreign countries have invoked that global minimum to slap higher taxes on US tech firms, if they concluded that generous US tax credits for research and development pushed their tax burden below that 15 per cent threshold.
Mr Trump in February directed his administration to combat foreign digital taxes, but they were not addressed in the trade deal announced in May between the US and the United Kingdom, which imposes a 2 per cent levy on foreign digital services.
It was unclear if the Treasury Department would actually use the new authority if it becomes law, or if the mere threat of action would convince other countries to change course. The department did not share its intended strategy when asked.
– Reuters
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