DSA and co: US President has digital laws reviewed abroad

With a presidential memorandum, US President Donald Trump is sending his authorities on a search for what he considers to be unfair treatment of US companies. In addition to China, the focus is on Canada, Australia, the United Kingdom and European laws such as the DMA, DSA and GDPR – and the taxation of digital companies.

In a memo published on Saturday morning European time, US President Donald Trump instructs the US Department of Commerce, the Trade Representative and other agencies to take action against "American companies and inventors against overseas extortion and unfair penalties". His letter focuses on two areas: taxes on digital services provided by US companies – and penalties imposed on such companies.

Trump complains about "extraterritorial authority" that other countries have usurped and that would "diminish the success and profits" of companies that "should be contributing to the well-being of our nation, not theirs", the memorandum states verbatim.

Since 2019, according to the letter, various US trading partners have introduced digital taxes aimed at looting US companies. In addition, partners have introduced rules for digital services that would affect US companies more than their own and would, for example, generate costs for data localization and transit fees for local providers. The President argues that this would violate US sovereignty. Although it is not specified exactly what the US President means, the White House explains in a fact sheet what is also meant by this: allegedly unfair practices in the legal treatment of US companies.

Targeting China – but also the EU

On the one hand, this is aimed at the ever stricter requirements of the People's Republic of China, but by no means only. Trump is probably referring to the European Union, Canada, Australia and Brazil in particular. In all of these countries, governments and parliaments have passed laws, some of them strict, to which US companies are subject. In Europe, there are three main pieces of legislation: firstly, the General Data Protection Regulation, which forces US companies to maintain at least approximately equivalent standards of protection when processing data from the EU. Since it came into full force in 2018, the number and amount of penalties imposed on US companies that have not complied with EU rules has risen massively.

The second regulation in the focus of the US administration is the Digital Services Act: this also mentions severe fines for companies as a way of forcing them to comply with EU rules. So far, no penalties have been imposed here, but almost all of the particularly large providers –, including US companies such as X, Meta and Alphabet –, are facing proceedings for a variety of reasons. The fact that some of these companies currently believe that they do not need to worry about penalties with the new US administration behind them is even more important.

However, the Digital Markets Act offers particular potential for tension: with this competition law, the EU can force providers with particular market power to unbundle their products and achieve interoperability with third parties. Admittedly, such laws are only ever related to the EU market and apply here. But the EU is too large and important a market for many providers to leave if they do not comply with the rules. The trade-off for companies is therefore whether it is more advantageous to offer several regionalized variants of their products and services or to orient themselves to the relative regulatory standard, which is usually the EU requirements, worldwide. The Trump administration is now inferring from such requirements and any penalties imposed for non-compliance that other states would unlawfully reduce the profits of US companies. Around the time the 45th and 47th US presidents took office, Meta's founder Mark Zuckerberg had already chosen the phrase that "penalties are essentially taxes".

The tax issue

US tax law and various agreements between the US and European countries have repeatedly led to disputes in the past: While US corporations made billions in profits from their business in Europe, for years they transferred the profits to lower-taxed US states such as Delaware. Digital services taxes (DST) were therefore seen for some time as a possible way of keeping at least a reasonable share of the enormous profits that US companies also made in Europe in the country.

Austria, Italy, France, Spain and the United Kingdom introduced such taxes or at least seriously considered them, as did Turkey, Nepal, Kyrgyzstan, India, Kenya and Tanzania. The Czech Republic, Poland, Hungary and Belgium have suspended such taxes, as have Brazil, Canada, Colombia, Tunisia, Sierra Leone, Uganda and Zimbabwe.

This wave of suspension is primarily related to a completely different area: The agreement on near-global minimum taxation within the framework of the Organization for Economic Cooperation and Development (OECD) – but no progress has been made here for years and Donald Trump has already announced that he thinks the idea is wrong. And in the EU, there are already some voices calling for a common digital tax in the event that Trump pulls out of the process completely. Although this would apply to all providers –, in absolute terms it would most likely hit US companies harder than the rest of the world.

It is not yet known by when the US President will demand results from his authorities regarding the ordered audits.

(nie)