Georgetown Law
Technology Review

President Joe Biden has a decision to make. In addition to decisions surrounding climate change, vaccine distribution, and police reform, Biden must determine whether or not to introduce new taxes that target Big Tech companies like Apple, Alphabet, Facebook, and Amazon.

He can’t take too long, though. European Union and Organization for Economic Co-operation and Development (“OECD”) member states have threatened to enact comprehensive digital taxation policies without U.S. input or support if President Biden fails to act soon. Per a French Finance Ministry spokesman, “[t]he European Union hopes Joseph Biden’s incoming administration will clarify the U.S. position on digital taxation within two months of taking office.”

Recent testimony from Biden’s Treasury Secretary nominee, Janet Yellen, suggests that the administration intends to work with the OECD, but Biden himself has said very little on the subject. While Biden repeatedly emphasized his plans to undo President Trump’s 2017 tax bill on day one of his presidency, he has provided few details about instituting digital taxation policies like a digital service tax (“DST”). Varying significantly in size and scope, DSTs generally seek to capture economic value created by technology companies that provide online advertising, data collection, or platform services to users. Unlike traditional corporate taxes, DSTs do not depend on a business’s physical presence in a tax jurisdiction; instead, DSTs are levied against companies based on the locations of their consumers.

International debate surrounding DSTs has intensified over the last decade, reaching a pinnacle in December 2019 when France unilaterally decided to impose a three percent DST on certain Big Tech digital revenues. Now that Biden has taken office, he must choose either to reject DST policies, join global corporate tax reform efforts, or create his own standard for taxing Big Tech companies.

The Options

Stick to the Status Quo

The U.S. Internal Revenue Code currently does not feature a DST. President Obama rejected calls for a DST throughout his tenure. President Trump did not include a DST in the Tax Cuts and Jobs Act of 2017 either. Instead, the Trump administration provided a windfall to American tech giants by reducing the corporate tax rate from 35 percent to 21 percent, removing a 35 percent tax on repatriated dividends, and levying a one-time 15.5 percent repatriation tax on previously accrued funds held by foreign subsidiaries.

Though he did not sign a DST into law, President Trump did endorse global corporate tax reform efforts led by the OECD. When progress stalled and U.S. support for negotiations began to waver, France and several other countries moved forward and unilaterally imposed DSTs ranging from 2-7.5 percent on certain Big Tech revenues. Convinced that the French DST was discriminatory against U.S. firms, Trump threatened to impose tariffs as high as 25 percent on imported French luxury goods per Section 301 of the Trade Act of 1974. He further escalated trade tensions with other countries that introduced DST legislation.

With threats of tariffs and a web of unilateral DSTs hanging overhead, Biden—similar to his predecessors—can nevertheless choose to either “punt” on DST proposals or reject them outright. Currently, there is broad bipartisan opposition to imposing a DST on U.S. technology companies. Janet Yellen herself acknowledged that existing DSTs “unfairly” target a few large U.S. digital platforms. Additionally, there are many other pressing policy issues today, which may lower the priority of corporate tax reform on the Biden administration’s agenda.

Join Global Reform Efforts

Instead of delaying or rejecting a DST, Biden may choose to champion global DST initiatives early on in his presidency. Throughout the election cycle, Biden strongly condemned President Trump’s “go-it-alone” trade policies. Biden may revive the OECD negotiations not only to address thorny questions surrounding taxation in the digital age but more broadly to reassure European allies and signal his commitment to multilateralism.

According to the OECD, substantial progress has already been made to build consensus among the 137 members participating in the global DST effort. Reports indicate that an agreement could come as soon as mid-2021. Furthermore, most countries that enacted unilateral DST policies, including France and Italy, have promised to remove such provisions if an international agreement is reached. Despite this progress, OECD officials recognize that the stakes are still very high: “Under a worst-case scenario – a global trade war triggered by unilateral digital services taxes worldwide – the failure to reach agreement could reduce global GDP by more than 1% annually.”

By affirming his commitment to the OECD process, Biden has the opportunity to ease trade tensions and remedy alliances long strained by tariffs and other retaliatory measures.

Create an Independent Standard

Instead of rejecting DST proposals or joining OECD negotiations, Biden could craft his own DST policy. Though this option would give the president far more freedom to promote U.S. interests, it may fuel resentment among OECD partners who have engaged in rigorous negotiations on digital taxation for more than seven years. A unilateral U.S. approach could also encourage other nations to pursue unilateral DST policies, resulting in a “compliance monster” of trade wars and multiple taxation for Big Tech.

The Decision

Now in office, Biden faces a host of complex issues. Among the many decisions to be made, Biden must evaluate the risks and rewards of either rejecting a DST, joining the OECD’s reform efforts, or crafting independent standards for taxing Big Tech.

He must do so soon. The world is watching, and the clock is ticking.