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UK hires law firm to help defend digital services tax amid US probe

The United Kingdom has hired Washington law firm Steptoe & Johnson to advise the country’s Treasury amid push-back from the Donald Trump administration against its plans to tax digital giants such a Facebook and Amazon.

The Office of the US Trade Representative (USTR) announced in early June that it was opening investigations into proposed and recently enacted Digital Services Taxes (DSTs) by the European Union and nine individual individual countries, including the UK. Based on the investigations’ results, the United States may impose tariffs or other import restrictions that could target the British auto industry and other export sectors.

“Available evidence suggests the DSTs are expected to target large, US-based tech companies,” USTR said in its June 2 notice. Written comments are due by July 15.

The UK is considering taxing digital services revenues in the country as part of its Finance Bill for 2020. If passed by Parliament, the tax would apply to revenues generated from April 1, 2020.

“The measure would apply a 2% tax on revenues above £25 million ($30.8 million) to internet search engines, social media, and online marketplaces,” USTR General Counsel Joseph Barloon wrote in the agency’s notice. “The tax applies only to companies generating at least £500 million ($616 million) in global revenues from covered digital services and £25 million in in-country revenues from covered digital services.”

Steptoe was hired to help the Treasury “prepare a brief for ministers with strategic advice and recommendations on how to engage with respect to the [USTR] investigation on the proposed digital services tax,” according to a contract filed with the US Department of Justice. In a second phase, the firm may “potentially” assist the British Treasury with “implementing the strategy agreed to by such ministers.”

“Available evidence suggests the DSTs are expected to target large, US-based tech companies.”

USTR General Counsel Joseph Barloon

The contract was signed by Mike Williams, the director of Business and International Tax at the Treasury, on June 19. Steptoe Chairman Philip West signed for the firm.

West, a former US Treasury official who previously served as the US government’s International Tax Counsel, is expected to play a significant role on the account along with Jeffrey Weiss, a former USTR official who was the lead US digital economy negotiator at the G20 talks in 2016 and 2017. Their hourly rates are $1,700 and $1,300, respectively.

Five other people are also registered as foreign agents on the account: Managing director Elizabeth Burks; partner Robert Rizzi; and associates John Cobb, Kate Jensen and Luke Tillman.

Digital services taxes have long been a bone of contention between foreign countries and the United States, the world leader in that area. The Trump administration has been particularly aggressive, threatening a 100% tariff on imports of French wine and other goods in retaliation for France’s digital services tax before reaching a truce earlier this year.

“USTR will initially focus its investigations into DSTs on ‘discrimination against US companies; retroactivity; and possibly unreasonable tax policy’ that may ‘diverge from norms reflected in the US tax system and the international tax system in several respects’,” DLA Piper wrote in a recent international trade alert. “Divergences from these norms may include ‘extraterritoriality; taxing revenue not income; and penalizing particular technology companies for their commercial success’.”

Further complicating matters for the United Kingdom: The tax dispute comes in the midst of talks over a free trade deal with the United States following Britain’s departure from the European Union. Many trade experts expect the US to use those negotiations to push back against the digital services tax.

Steptoe is also advising the UK’s Department for International Trade in those talks, part of a $7.5 million legal effort that Foreign Lobby Report covered in depth on June 8. Five US-based firms are working on the US-UK trade account as subcontractors to London-based law firm Linklaters, as detailed in our chart below:

By Christine Suh / Foreign Lobby Report.