º¬Ðß²ÝÓ°Ôº

Digital platforms based in the United States have an overwhelming market presence in the European Union. In the evolving trade war triggered by President Donald Trump’s tariff announcements, that makes them potential targets for EU retaliation – European Commission President Ursula Von der Leyen has as much. But apart from the question of whether retaliation against digital services is good strategy, there is a question of whether such retaliation is even feasible.

Ideas for taxing digital services are . Digital services taxes (DSTs) have been implemented in several EU countries, including Denmark, Poland and Portugal, as sales taxes on certain e-commerce and advertising transactions in digital platforms. They tax profits that large and usually US-based digital platforms make in EU markets, but not cross-border trade. Like value-added taxes, DSTs affect not only the platforms, but also those who buy and sell via the platforms because DSTs who increase prices for local consumers.

The Organisation for Economic Cooperation and Development agreed in October 2021 on a two-part solution to address corporate income tax-shifting by large multinationals, including digital platforms, and to reallocate some taxing rights to countries where revenue is generated. Through a , the OECD’s so-called Pillar One intends to replace DSTs with local taxes on excess profits (above 10% of the revenues of in-scope companies). This convention is not yet open to signature and is  to be acceptable to the US administration. Also, in the current trade context, the EU will be looking for tools that target cross-border trade in digital services, not just domestic revenues.

Digital services platforms are particularly difficult to target. As multi-sided marketplaces, they bring together buyers, sellers, advertisers and other parties. The weakest side – usually the seller – pays for market entry, while buyers get free entry. Sellers pay because they cannot escape and multi-home between platforms; they have to be where consumer attention is. For example, Google Search is free for users, but advertisers pay and finance the search business model. On e-commerce sites such as Amazon, social media such as Facebook and Instagram, and in Android and Apple app stores, sellers pay while buyers have free access – though ‘free’ for buyers implies accepting capture of personal data and putting up with advertising.

Retaliation against digital platforms might in theory be done under the EU  (ACI, Regulation (EU) 2023/2675), a framework for escalating countermeasures against foreign economic coercion. Annex I Article 5 of the ACI allows the imposition of measures, including tariffs, on trade in services. Annex II distinguishes between domestic and foreign services providers, depending on whether they have ‘substantive’ business operations in an EU country.

All US digital platforms have legal establishments in the EU. For tax reasons, they select Ireland (Apple, Microsoft, Google, Meta), Luxembourg (Amazon) and in some cases the Netherlands. Platforms with substantive presence in the EU cannot be the target of trade measures under the ACI.

The ACI sets no quantitative threshold to determine the country of origin of a service; it does not define what ‘substantive’ means. Buyers and sellers on platforms are likely to be predominantly local. But how much of the turnover or value-added generated has to be local to classify the platform as local?

Pinning down the geographical location of parties in digital transactions is hard when the underlying digital infrastructure is spread out globally. The difference between cross-border () and local (Mode 3) delivery of a digital service is just another internet address that can be changed in milliseconds. For example, platforms bring together advertisers and publishers (owners of webpages) and several layers of advertising intermediaries. Imposing a tariff on advertising imports from the US rather than ad transactions between EU citizens would require detailed information on the locations or nationalities of all these agents. Imposing a tax on all EU advertising transactions on US platforms such as Google, Meta and Amazon would probably hurt EU advertisers most. They could try to move to EU-based platforms but the effectiveness and reach of advertising services may be considerably reduced.   

The ACI not is designed to do that; it operates at aggregate platform level only. That makes it very hard to determine if a platform has ‘substantive’ presence in the EU. It is notoriously to produce reliable estimates of bilateral trade in services anyway. Any arbitrary decision to invoke the ACI would risk imposing a tax on EU users without retaliatory effect on the US.