Policy Note: An Asian Perspective on Pillar One Amount A and Digital Service Taxes

The standard narrative in Pillar One of the G20-OECD BEPS 2.0 is that digital service taxes (DSTs) and similar unilateral measures will proliferate if the Amount A Multilateral Convention (MLC) does not succeed. The only real deterrent in that scenario is the threat of US retaliation using section 301 trade tariffs. This article presents a more nuanced view. A key insight is that, although European jurisdictions use DSTs to tax offshore digital services that lack a physical nexus to impose regular income tax, very few Asian jurisdictions use European-styled DSTs to tax offshore digital services. They extend pre-existing value added tax (VAT) instead that is not subject to the US section 301 retaliation partly due to the non-discriminatory nature. For the foreseeable future, it is unlikely that Asia will follow the European or African approach as advocated by the African Tax Administration Forum (ATAF) of adopting European DSTs. This is partially because Asia, in contrast to Africa, lacks a regional organization such as the EU or ATAF advocating DSTs as the alternative to the OECD endorsed Amount A. Further, Asia also does much more trade with the United States than Africa does, giving Asian jurisdictions more pause before risking US retaliation.