Tax News & Views International Weekly: New Digital Levies Emerge

While the United States continues to pressure countries to rescind digital services taxes it believes are targeting the U.S. tech sector–and holds out hope that it can reach a solution at the Organization for Economic Cooperation and Development—there may be a new variation on the policy to deal with.

Australia, Canada and Germany have all recently looked into hiking fees on streaming and social media companies, to fund local initiatives including news, TV programming and filmmaking.

While in effect similar to DSTs, these are more targeted and, in theory, serve a more clearly defined national public service. Australia, for instance, has proposed a new tax on social media companies, meant to encourage them to partner and support local news organizations which the government claims have been unfairly robbed of revenue by services like Facebook. This new legislation, first announced in April, follows an earlier effort to pressure social media companies to make arrangements with local news.

In Canada’s case, the new initiative comes not from the legislature, but from a decision by the Canadian Radio-television and Telecommunications Commission to heighten a pre-existing regime. The commission last month ordered streaming companies that make more than $25 million in Canadian dollars ($18 million in U.S. dollars) to contribute at least 15 percent of their revenue to local and indigenous content. U.S. trade organizations such as the Computer & Communications Industry Association have claimed that the decision will largely target American streaming services.

“CCIA supports efforts to promote Canadian and Indigenous creators, but mandatory revenue obligations and prescriptive discoverability rules will raise costs, reduce choice, and discourage investment,” said Jonathan McHale, the CCIA’s vice president of digital trade, in a public statement.

A similar German law, requiring streaming companies to invest 8 percent of their German revenue in local or European film and TV production, drew the ire of U.S. Trade Representative Jamieson Greer, who said the country was looking to use U.S. firms “like a piggy bank for pet, protectionist projects.”

So far, USTR has not initiated any investigations into these rules under anti-discriminatory trade provisions, such as Sec. 301. The Canada action comes as the U.S.-Mexico-Canada agreement’s mandatory review—although it’s hardly the only issue complicating that process.

The now-defunct Pillar One agreement was meant to stop countries from enacting new digital-specific taxes, and offer them an alternative. As U.S. and OECD leaders look for a replacement, these latest levies demonstrate how innovative governments can be at finding new variations, making the negotiations all the more complicated.

Noteworthy Items This Week

OECD Calls for Modernizing Intragroup Services Guidance – Alexander F. Peters, Tax Notes ($):

One of the more significant changes is the reorganization of the chapter around the concept of accurate delineation.

Under the current 2022 guidelines, Chapter VII largely focuses on two questions as spelled out in paragraph 7.5: whether a service has been rendered (beneﬁt test), and, if so, what the arm’s-length charge should be. The 2026 draft instead begins with a dedicated section on accurately delineating intragroup service transactions (proposed new paragraph 7.5 and following sections), emphasizing functional analysis, assets used, risks assumed, organizational structures, and interdependencies with other controlled transactions.

That shift reﬂects a broader trend in OECD transfer pricing guidance since the launch of the base erosion and profit-shifting project. Rather than treating services as a relatively self-contained category of transactions, the draft embeds intragroup services within the general analytical framework of Chapter I following BEPS actions 8-10, which formalized the accurate delineation concept.

OECD Global Minimum Tax Penalty Relief Keeps Companies in Limbo – Ryan Hogg and Lauren Vella, Bloomberg Tax ($):

Countries’ own laws may constrain their ability to grant relief to businesses falling afoul of local GloBE Information Return requirements, tax practitioners say. And it isn’t clear under under recent OECD guidance whether companies will remain eligible for helpful safe harbors after returns are filed centrally, or if there will be knock-on effects for other tax reports.

“It is imperative that companies, acting in good faith, do not face penalties for circumstances outside their control,” said Daniel Smith, co-chair at Business at OECD’s tax committee and senior director of international tax planning and policy at Google.

The Organization for Economic Cooperation and Development published guidance May 19 saying countries that have adopted the global minimum tax had reached a “common understanding” to use available mechanisms, “to the extent available under their respective domestic laws,” to waive penalties for late submission of local GIR filings.

Trump’s Trade Czar Takes a Globalist Victory Lap: Supply Lines – Shawn Donnan, Bloomberg Tax ($):

The jury is still out on the effectiveness of the Trump tariffs to deliver on their core promise: a reindustrialization of America and the return of factory jobs. But you can certainly make the case that Team Trump is recording wins in the intellectual battle to reshape how the world views trade and tariffs, and that one man is increasingly responsible.

At the very least, that’s what US Trade Representative Jamieson Greer was projecting last week as he embarked on a two-part victory tour of globalist institutions.

Maria José Garde: OECD Transparency Cooperation Despite Geopolitical Strains – Nana Ama Sarfo, Tax Notes ($):

Maria José Garde is in high demand these days. Over the past several years Garde has served as Spain’s director general of taxation, the chair of the EU Code of Conduct Group (Business Taxation), and the chair of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes. Now, she has a new post. In February, the OECD tapped Garde to serve as the new head of the Secretariat for the Global Forum.

Garde recently sat down with Tax Notes to discuss her priorities for the organization, the challenges she hopes to address, and the organization’s response to emerging digital challenges like the growth of cryptocurrency and artificial intelligence.

Int'l Tax In May: Tariff Refunds Begin, New Levies Thrown Out – Molly Moses, Law360 Tax Authority ($):

More customers have lined up to seek their share of what many of them argue is a windfall for importers, who have received or are due to receive refunds of the IEEPA tariffs they passed on to consumers. Two Sony PlayStation console owners said in a class action May 6 that Sony Group Corp. raised its prices in response to the tariffs and now stands to benefit twice from them — once in the form of higher costs for consumers and once in the form of tariff refunds. Customers of Nike Inc. made similar arguments in their proposed class action May 8, saying they were the ones who bore the costs of the illegal tariffs.

Costco Wholesale Corp., already subject to a class action filed in March, told an Illinois federal court May 18 that the case is premature because corporate refunds are uncertain.

"Costco has not received any refunds, and it is not clear when Costco might do so or in what amount, let alone whether and when such refunds would relate to the specific products plaintiff purchased at Costco," the company said.

Public Domain Superhero of the Week

Every week, a new character from the Golden Age of Comics, who’s fallen out of use.

This week’s entry: Rocket Man

Debut Year: 1941

Debut Publication: Scoop Comics #1

Origin Story: An inventor who created a three-jet rocket pack, he fights villains along with his fiancée, Rocket Girl.

Superpowers: Flying, of course.

(No known relation to the protagonist of the Elton John song.)

Eide Bailly's International Tax Team and our affiliates at HLB, The Global Advisory and Accounting Network, stand ready to assist with your worldwide tax needs.