U.S. Rep. Randy Feenstra (R-IA) recently raised concerns about the implications of the U.S. Trade Representative’s (USTR’s) digital trade decision for U.S. tax policy.
“We’ve seen how foreign countries have targeted the American economy to collect additional tax revenue,” Rep. Feenstra said in an April 29 statement. “The next iteration of this trend could occur following USTR’s reversal on digital trade policies that would allow foreign countries to require American businesses to either invest in those countries or lose access to those markets.
“Not only is this bad for jobs and investment at home, but it also increases the deficit and creates an unnecessary drag on the growth of the digital economy,” he added.
The USTR on March 29 released the congressionally mandated National Trade Estimate Report on Foreign Trade Barriers (NTE), an annual series that surveys significant foreign barriers to U.S. exports.
The report provides estimates of the impact of these foreign practices on the value of U.S. exports and includes the USTR’s decision to remove broad sets of barriers — including many significant measures that some lawmakers say could harm operations of U.S. digital exporters.
“The tax implications of this decision should have been thoroughly analyzed before the Biden administration unilaterally reversed a long-standing, bipartisan position on digital trade policy,” said Rep. Feenstra.
The congressman and nine of his Republican colleagues serving on the U.S. House Ways and Means Committee reiterated such concerns in an April 26 letter sent to U.S. Treasury Secretary Janet Yellen in which they outlined what they say are the harmful economic and deficit impacts of the Biden administration’s digital trade policy decisions.
For instance, the lawmakers seek to identify to what extent the U.S. Treasury Department consulted with USTR about these potential tax ramifications, according to their letter.
“First, the data-localization requirements that would be allowed to proliferate in the absence of U.S. leadership could, in practice, require some U.S. based companies to have a taxable presence… in foreign jurisdictions where common business practice otherwise would not require such presence,” wrote Rep. Feenstra and his colleagues. “This could have the effect of diverting investment from the United States.”
Second, they noted that this new requirement has significant international tax implications allowing foreign governments to claim a right to tax business revenue that would be taxed in the U.S. under existing law and treaties.
Finally, the policy also appears to be at odds with many of the objectives outlined by the Treasury Department, wrote the members, who included U.S. Reps. Darin LaHood (R-IL), Mike Kelly (R-PA), Ron Estes (R-KS), Carol Miller (R-WV), and Adrian Smith (R-NE).
They told Yellen they planned to ask her about these matters during the Ways and Means Committee’s fiscal year 2025 budget hearing held on April 30.