ISLAMABAD: The new sweeping U.S. tax bill under consideration grants President Donald Trump significant authority to retaliate against foreign countries that impose special digital service taxes targeting major American tech giants like Amazon and Alphabet.
This provision, found in Section 899 of the bill, would allow the U.S. Treasury to label such taxes as unfair and impose countermeasures, including higher taxes on individuals and companies from those countries operating in the U.S.
The measure reflects growing bipartisan frustration in Washington over foreign digital taxes, which 17 countries, primarily in Europe, have introduced or announced to tax U.S. tech products such as Meta’s Instagram. Recently, Germany considered a 10% levy on digital platforms like Google.
Representative Ron Estes, a key architect of the provision, stated, “If foreign countries want to come into the United States and tax U.S. businesses, then those foreign-based businesses ought to be taxed as well.”
How the Retaliation Would Work
Under this provision, the Treasury Department can designate countries imposing these digital taxes as “discriminatory foreign countries.” This could trigger escalating tax penalties on that country’s residents and firms doing business in the U.S., potentially increasing tax rates by up to 20 percentage points over time.
The bill aims to raise an estimated $116 billion over the next decade through these retaliatory measures.
Experts highlight both potential benefits and risks. Some believe the provision could help reduce trade imbalances by potentially weakening the U.S. dollar, thus boosting U.S. exports. However, concerns exist that such retaliatory taxes might discourage foreign investment in the U.S., as investors might seek to avoid the new levies by shifting investments elsewhere.
Political and Global Context
The bill’s retaliatory stance contrasts with the global 15% minimum corporate tax deal brokered by the Biden administration, which Republicans criticize as favorable to Chinese companies.
Trump has previously pushed back against foreign digital taxes but they were not addressed in recent trade agreements such as the U.S.-U.K. deal imposing a 2% digital tax.
While the Treasury’s exact strategy on using this new power remains unclear, the threat alone may influence foreign governments to reconsider their tax policies on American tech firms.
The bill has passed the House and is now pending Senate approval amid strong partisan debates.
