The Organisation for Economic Co-operation and Development (OECD) and G20 countries began negotiations in 2013 to address tax matters related to the digitalization of the economy as part of a broader review of international tax rules. Additional multilateral negotiations in that area are ongoing at the OECD.

On July 22, 2020, despite ongoing negotiations at the OECD, the United Kingdom adopted a Digital Services Tax (DST). The UK’s unilateral DST applies a two percent tax on the revenues of certain search engines, social media platforms and online marketplaces. The UK DST applies only to companies with “digital services revenues” exceeding £500 million and “UK digital services revenues” exceeding £25 million. Companies became liable for the DST on April 1, 2020.

On June 2, 2020, the U.S. Trade Representative initiated an investigation of the UK DST under section 302(b)(1)(A) of the Trade Act of 1974, as amended (the Trade Act). Section 301 of the Trade Act sets out three types of acts, policies, or practices of a foreign country that are actionable: (i) trade agreement violations; (ii) acts, policies or practices that are unjustifiable (defined as those that are inconsistent with U.S. international legal rights) and burden or restrict U.S. commerce; and (iii) acts, policies or practices that are unreasonable or discriminatory and burden or restrict U.S. commerce. If the Trade Representative determines that an act, policy, or practice of a foreign country falls within any of the categories of actionable conduct, the Trade Representative must determine what action, if any, to take.