ANKARA: The US has launched an investigation into new digital services taxes (DST) brought in by Turkey to see if they unfairly discriminate against American businesses.
The Office of the US Trade Representative (USTR) announced on Wednesday that it would be scrutinizing the Turkish taxes along with similar levies adopted or being considered by the EU, the UK, India, Italy, Austria, Spain, Brazil, the Czech Republic, and Indonesia.
Authorities in all of the countries being probed have until July 15 to provide their public comments to the USTR.
If the Turkish tax scheme is found to be unilaterally and unfairly targeting US tech companies such as Facebook, Amazon, Netflix, and Google, the country may face US tariffs on strategic products.
In a statement, US trade representative, Robert Lighthizer, said: “(American) President (Donald) Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies. We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”
Turkey introduced a new DST law in December 2019 to collect revenues derived from digital services provided by multinational companies having no headquarters in Turkey. The controversial legislation targets tech firms having a high number of users within Turkish territories, but which pay little in tax.
However, compared to similar laws in other countries, Turkey’s DST rate is one of the highest in the world.
All companies having revenues in Turkey worth 20 million Turkish lira (2.6 million euros) and consolidated group revenue of 750 million euros or more, should pay DST – that is 7.5 percent of gross revenue from sales in Turkey, applicable from April 1.
Online advertising services, sales of digital content, and digital platform services will be taxed under the new law.
Experts believe that the US move to investigate Turkey is aimed at restricting other countries from adopting similar taxes that hit American businesses.
Dr. Erdal Ekinci, a partner at Istanbul-based Esin Attorney Partnership, said the USTR might argue that Turkey’s DSTs give “less favorable” treatment to US service suppliers than to their EU and local competitors.
If Ankara did not take a backstep, the US could retaliate in a similar way as it did with France. In December, the US proposed increasing tariffs by up to 100 percent on $2.4 billion worth of French products after the country’s digital taxes were found to be discriminatory for US companies. Consequently, France had to suspend the digital tax until the conclusion of relevant talks at the Organization for Economic Cooperation and Development.
Technology expert, Burak Dalgin, told Arab News that there was a risk of double taxation in Turkey in terms of digital services provision. “The multinational companies have to pay both taxes for their digital services and also for withholding tax for their operations in Turkey. Such taxation schemes should be designed via international consultation,” he said.
Dalgin, who is a founding member of Turkey’s new breakaway DEVA Party led by ex-finance tsar Ali Babacan, noted that Turkey would appoint an ambassador to Silicon Valley (in California) if the fledgling party came to power.
“We need a comprehensive perspective that develops our technology ecosystem, not the other way around,” he added.
Currently, only Google has a liaison office in Istanbul, while Netflix may open an office soon. According to sector data, total revenues generated by technology giants based in Turkey are about $2.3 billion.
“The Turkish DST rate of 7.5 percent is also extremely high compared to other jurisdictions that are generally around 2 percent or 3 percent, such as 2 percent in the UK or 3 percent in France,” Ekinci said.
“If the USTR imposes sanctions to Turkey, it would definitely affect adversely the economic and commercial relationship between the two countries. Those sanctions may be the introduction of new additional customs duties and importation regime restrictions to the products exported from Turkey to the US,” he added.
During the first quarter of 2020, the US ranked second among Turkey’s import activities, and was the fifth destination country exporting Turkish products.
Ekinci said: “The Turkish government may compare the state income generated through the DSTs collected from the US companies and the economic burden of those sanctions, and as a result of this comparison, Turkey may choose to revise the DST legislation in a way to eliminate any discrimination claims.”
