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US and Turkey reach agreement on taxes on digital services
November 25, 2021
Thompson Hine LLP
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On November 22, 2021, the US Trade Representative’s Office (USTR) announced that the United States and Turkey had reached an agreement on the treatment of taxes on digital services (DSTs).
According to the agreement, Turkey will repeal its existing DST before the entry into force of Pillar 1 of the Organization for Economic Co-operation and Development (OECD) global taxation agreement. The United States and Turkey have agreed that the same terms will apply as under the Unilateral Action Compromise concluded in a previous agreement between the United States and Austria, France, Italy, Spain and the United Kingdom. See update from October 22, 2021.
Under the circumstances defined in the agreement, the liability for DSTs incurred by US companies during this transition period (Pillar 1 of the OECD Agreement to be fully implemented in 2023) will be offset against future income taxes incurred under Pillar 1 of the OECD Global Tax Agreement. In turn, the United States will lift its currently suspended additional tariffs on certain imports from Turkey that were included in the USTR investigation under Section 301 of the Turkish DSTs. The “Joint Declaration by the United States and Turkey on a Compromise on a Transitional Approach to Existing Unilateral Measures During the Transitional Period before Pillar 1 comes into force” is available here. While the Section 301 investigation into Turkey’s DSTs will soon be closed, the USTR will oversee the implementation of the agreement with Turkey. For more information about this investigation, see the June 4, 2020, June 2, 2021, and January 7, 2021 updates.
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