Trump Revives and Expands the Battle Over Digital Services Taxes

On February 21, 2025, President Donald Trump issued a presidential memorandum (the Memorandum) signaling that his administration intends to take action with respect to tax and regulatory measures affecting U.S. digital service providers.

Although the Memorandum does not itself impose any specific remedies, it calls for studies and recommendations on appropriate responsive measures (e.g., tariffs to counter digital services taxes (DSTs)).

The Memorandum orders the Office of the U.S. Trade Representative (USTR), the Departments of Commerce and the Treasury, and the senior counselor to the president for trade and manufacturing to:

• Investigate “the digital service taxes (DSTs), fines, practices and policies that foreign governments levy on American companies.”
• Determine whether to take remedial actions.

The primary goal is to protect American companies and innovators from what the Trump administration considers unfair and discriminatory taxation practices by foreign governments.

Many in the U.S. business community have long viewed DSTs as targeting U.S. technology companies disproportionately, thereby creating an uneven playing field in the global market. Additionally, the White House fact sheet accompanying the Memorandum makes clear that the European Union’s Digital Markets Act (DMA) and Digital Services Act (DSA) will face scrutiny as part of this review.

Key Takeaways

• The first Trump administration challenged DSTs imposed by European countries and other nations using Section 301 of the Trade Act of 1974 (Section 301), but struck a deal with these countries that avoided the imposition of tariffs.
• The EU’s DMA and DSA, long viewed by American technology companies as targeting them unfairly, will also be a focus of investigation.
• The Trump administration will examine whether any EU or U.K. policies or practices foster censorship or undermine free speech.

Digital Services Taxes in Brief

DSTs are taxes levied on revenues generated from certain digital services, such as online advertising, digital intermediary activities and the sale of user data. Countries implement DSTs to collect revenues from multinational companies providing digital services in their jurisdiction even if these companies do not generate income through the ownership of assets there.

DSTs are particularly common in Europe. For instance, the United Kingdom imposes a DST with a 2% rate, whereas Italy and France each have a 3% DST. Germany does not impose a DST but has applied its nonresident income taxation rules to certain intellectual property (IP) transactions of U.S. multinationals in the past, to similar effect.

The chart below lists the DSTs across jurisdictions in Europe. Some are limited in scope to certain sectors and subject to country-specific and/or global income thresholds.

DST Battles and Détente

During the first Trump administration, USTR initiated investigations in 2019 and 2020 under Section 301 into the DST practices of Austria, France, India, Italy, Spain, Turkey and the U.K. In its investigation of France, USTR determined in December 2019 that France’s DST was “unreasonable or discriminatory and burden[ed] or restrict[ed] U.S. commerce” and therefore was actionable under Section 301. USTR announced in July 2020 that it would respond by imposing an additional duty of 25% on certain French products. However, USTR immediately suspended application of the tariffs to allow for bilateral and multilateral negotiations to resolve the matter.

Similarly, USTR determined in June 2021 that in each of the remaining investigations, the DSTs were actionable under Section 301 and imposed 25% duties, which were simultaneously suspended for 180 days to complete then-ongoing international taxation negotiations under the auspices of the Organization for Economic Cooperation and Development (OECD) and the Group of 20 (G20).

In all cases, the U.S. reached agreements with the countries under investigation in the fall of 2021, and the retaliatory tariffs were never imposed. On October 8, 2021, over 135 countries participating in the OECD/G20 negotiations — including Austria, France, Italy, Spain, the U.K. and the U.S. — agreed on a two-pillar approach to reform and coordinate the withdrawal of DSTs. In connection with the OECD/G20 agreement, the U.S. and the preceding European states announced a joint political agreement on October 21, 2021, in which the European states agreed to give some measure of tax credit for DSTs paid before the implementation of Pillar One against Pillar One liabilities in those states.

On the same day as the announcement of this joint political agreement, USTR announced that it would terminate its Section 301 actions and would not impose further actions, in order to allow those European states to implement their OECD/G20 DST commitments by the Pillar One deadline of December 31, 2023 (which was subsequently extended to December 31, 2024). In November 2021, USTR reached bilateral agreements with Turkey and India pursuant to the same Pillar One framework, terminating its Section 301 actions against them as well.

But as evident in the chart above, many DSTs remain in effect, with the repeal of some remaining contingent on a finalization on the Pillar One deal. Progress on that front has stalled, and any momentum may have been further sapped by the Trump administration’s decision in January 2025 to exit Pillar Two of the agreement. This also applies to the German nonresident income taxation of certain IP transactions of U.S. multinationals, which still applies for certain periods, despite the endeavors of some members of Congress to initiate a full repeal of such rules.

Call for Renewal of Investigations and Launch of New Investigations

The Memorandum instructs USTR to “renew” the Section 301 investigations into “France, Austria, Italy, Spain, Turkey, and the United Kingdom.” It is not clear why India is left out, although it may have something to do with the U.S. and Indian governments’ recent agreement to negotiate the first tranche of a comprehensive bilateral trade agreement by fall 2025.

The Memorandum also directs USTR to:

• Investigate the use of DSTs by any other country.
• Determine whether to pursue state-to-state dispute settlement proceedings under the U.S.-Mexico-Canada Agreement (USMCA) with respect to the DST imposed by Canada.
• Assess whether to investigate Canada’s DST under Section 302(b) of the Trade Act.

More broadly, the Memorandum directs USTR, Treasury and Commerce to jointly identify other practices, beyond DSTs, that “discriminate against, disproportionately affect, or otherwise undermine the global competitiveness or intended operation of United States companies.”

By April 1, 2025, USTR is to recommend to the president (as part of a report ordered by Trump on January 20, 2025), appropriate actions to counter any such practices under applicable authorities.

The Memorandum also calls for the report to identify tools the U.S. can use to secure among trading partners a permanent moratorium on customs duties on electronic transmissions, and for the establishment of a process that allows American businesses to report to USTR foreign tax or regulatory practices that disproportionately harm U.S. companies.

DMA and DSA in the Crosshairs

The White House fact sheet accompanying the Memorandum makes clear that the EU’s DMA and DSA “will face scrutiny from the Administration.”

The DMA, adopted in 2023, regulates the market power of technology platforms acting as “gatekeepers” that provide “core platform services,” as designated by the European Commission. The DMA sets forth certain obligations and prohibitions, including a prohibition on combining personal data collected from two different services belonging to the same company. The DMA prohibits certain self-preferencing treatment and includes provisions concerning the preinstallation of services and apps. In addition, the DMA contains provisions related to bundling practices and provisions that are intended to ensure interoperability, portability, and access to data for businesses and end-users of platforms.

The DSA is a 2022 regulation that applies to social media platforms, search engines, online marketplaces and internet service providers, imposing the most stringent obligations on designated “intermediaries.” The DSA has a broad scope and regulates many aspects of digital services, including liability for online content and services, targeted advertising, know your business customer (KYBC) requirements, transparency for users and managing systemic platform risks.

The various requirements and restrictions imposed under the DSA apply differently depending on the type of digital service being provided. For providers of hosting services, the wide-ranging regulation establishes a notice-and-action regime in relation to these obligations, under which they are required to have a process in place to assist with the notification of illegal content by users. The DSA also gives users of online platforms the right to appeal content moderation decisions.

As with DSTs, U.S. technology companies have long viewed the DMA and DSA as unfairly targeting their operations in the EU, and resistance to the EU’s technology regulatory regime appears to be gaining momentum in the U.S. government.

In addition to White House scrutiny, the House Judiciary Committee sent letters to the European Commission on February 23, 2025, and January 31, 2025, criticizing application of the DMA and DSA, respectively, to U.S. companies, arguing that “[c]ertain innovative products and services offered by American companies will not be released in the EU or are being restricted because of the DMA and other European laws and regulations.”

For its part, the EU — which views the regulation of large technology companies as fundamental to its “digital sovereignty” — has vowed to enforce its laws regulating digital services in the wake of President Trump’s actions. “We are concerned about the broad interpretations reflected in the memorandum and the unilateral actions they may trigger,” European Commission spokesperson Thomas Regnier said in a statement on February 24, 2025. The EU, he stated, “will respond swiftly and decisively to defend its rights and regulatory autonomy against unjustified measures.”

Linking Trade With Free Speech and Censorship

In a first for U.S. trade policy, the Memorandum also directs the Departments of Treasury and Commerce and USTR to:

• Investigate whether any act, policy or practice of any country in the EU or U.K. has the effect of requiring or incentivizing the use or development of U.S. companies’ products or services in ways that “undermine freedom of speech and political engagement or otherwise moderate content.”
• Recommend appropriate actions to counter such practices under applicable authorities.

Partners James Anderson, Johannes Frey, Patrick J. O’Gara and Thomas Perrot contributed to this article.

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