Digital services tax (DST) – a tax on sales revenue from online advertising and digital intermediation services – has become an increasingly common unilateral response to the tax challenges of digitalisation. Companies like Google, Amazon, Facebook, for example, earn approximately half their profits outside of their home country (the US), dominate markets in many market countries but pay very little income tax, if any, to these countries. The market countries for digital services naturally wish to expand their national tax bases to get their ‘fair share’ of tax revenue from non-resident digital service suppliers. Many countries recently enacted DSTs, notwithstanding the strong US response and section 301 investigations into the DST adopted or under consideration by France, Austria, Brazil, the Czech Republic, the EU, India, Indonesia, Italy, Spain, Turkey, and the UK.  

The US often uses investigations under section 301 of its Trade Act 1974 to deal with trade disputes and justify imposition of tariffs. As of today, the US has not imposed any tariffs on countries that adopted DSTs. The G7 Finance Ministers’ communique issued on 5 June 2021 suggests the US no longer demands the immediate removal of DSTs. Instead, the group’s members “will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes”.

New Zealand does not have a DST, but what can it learn from section 301 investigations into DSTs of other countries?