Digital Services Tax

Section 301 Duties on Digital Services Tax – What is That All About?

By Adrienne Braumiller, Partner & Founder, Braumiller Law Group

What is a Digital Services Tax (DST)? A DST is a tax on revenue a company generates from digital services provided to customers in different countries. The services include advertising, data transfer and online selling.

For example, let’s take a digital services company we will call Doodle. Doodle provides services in Italy but has minimal offices and facilities in that country. Doodle makes considerable revenue in Italy selling online advertising and providing a platform for online marketplaces. Doodle pays minimal taxes in Italy due to its minimal physical presence there. Italy proposes to change this by levying a tax on the portion of its total revenue that Doodle makes by selling online services in that country. That is a digital services tax.

The U.S. has objected to countries imposing DSTs, stating that they are targeting large U.S. tech companies. Beginning in June 2020, the U.S. Trade Representative (USTR) initiated an investigation into whether DSTs were actionable under Section 301 of the Trade Act. As described in the Federal Register notice, “actionable matters under Section 301 include, inter alia, acts, polices, and practices of a foreign country that are unreasonable or discriminatory, and burden or restrict U.S. commerce. An act, policy, or practice is unreasonable if the act, policy, or practice, while not necessarily in violation of, or inconsistent with, the international legal rights of the United States, is otherwise unfair and inequitable.”

On March 31, 2021, the USTR published in the Federal Register proposed actions against the DSTs imposed by Austria, India, Italy, Spain, Turkey, and United Kingdom. The proposed actions are to impose additional Section 301 duties of up to 25% on selected products of each of these countries. The products are designated by their Harmonized Tariff Schedule classification.

For example, the proposed Section 301 duties on Italy would affect such products as perfumes, handbags, gloves, men’s and women’s blazers and jackets, ties, footwear, and spectacle lenses. Companies importing products from any of the subject countries should review the Federal Register notices to determine if their products are affected.

The complete text of the various Federal Register notices on the proposed DST Section 301 duties can be found at
Each of the Federal Register notices with proposed actions solicited input on whether the special duties should be imposed and, if so, how much. Specifically, the USTR requests input on:

• The level of burden or restriction on the U.S. economy as a result of the DSTs;
• The aggregate level of trade covered by the proposed additional duties;
• The level of increase in duty, if any, to be imposed; and
• The specific products subject to the special duties and whether any of the products should be removed.

Comments are due by April 30, 2021. Both proponents and opponents of the Section 301 duties can comment.

In addition, the Section 301 Committee (a committee reporting to the U.S. Trade Representative) will hold virtual public hearings on the proposed Section 301 duties. First, there will be a multi-jurisdictional hearing on May 3, 2021. Then there will then be separate hearings on each of the proposed individual country actions on separate dates in mid-May 2021. Persons must formally request no later than April 21 to be heard at any of these meetings.

The outcome of these meetings will be determinations of whether the Sect. 301 duties will be assessed, what countries and HTS classifications will be subject to them, and the Sect. 301 duty rates.

Should the Section 301 duties be imposed on any or all of these countries, there will be compliance challenges for both importers and U.S. Customs & Border Protection (CBP). The duties are based on the country of origin of the affected products – even if they are exported from another country. For example, wool jackets made in Italy and classified under a subject HTS number but exported from Switzerland would still take the Section 301 duty. CBP will need to examine and test many imports to determine if they have been falsely marked or trans-shipped to avoid the special duties.

If the Section 301 DST duties do go into effect, how long will they last? Probably until the Digital Services Tax issue is resolved between the U.S. and the affected countries.

If you need any assistance preparing comments or need assistance with requesting the opportunity to testify at the hearings, please contact me at