What's Happening?
The United States has announced new trade agreements with Cambodia and Malaysia, along with framework agreements with Thailand and Vietnam, primarily affecting bilateral trade and customs duties. These
agreements include provisions that prohibit Cambodia and Malaysia from imposing Digital Service Taxes (DSTs) that discriminate against US companies. The agreements also address the US's Foreign Derived Intangible Income regime, which the European Commission has criticized as an export subsidy incompatible with World Trade Organization commitments. The agreements aim to prevent challenges to US tax measures related to exports.
Why It's Important?
These trade agreements are significant as they attempt to protect US companies from discriminatory tax measures abroad, particularly DSTs, which have been a contentious issue in international trade. By including these provisions in trade agreements rather than tax treaties, the US is taking a strategic approach to safeguard its economic interests. The agreements also reflect ongoing negotiations on global tax policies, such as the OECD/G20 Inclusive Framework's Pillar Two, and could influence future trade and tax negotiations with other countries.
What's Next?
The agreements could serve as a model for future negotiations with other countries that have imposed DSTs on US companies, such as those in Europe. However, the initial agreements with the EU and UK did not include commitments to eliminate DSTs, indicating that further negotiations will be necessary. Monitoring how these agreements influence tax policies in Cambodia and Malaysia, particularly regarding VAT regimes, will be crucial.
Beyond the Headlines
The inclusion of tax-related provisions in trade agreements highlights the complex interplay between trade and tax policies. It raises questions about the effectiveness of such measures in preventing discrimination against US companies and whether similar strategies could be employed in other international negotiations.
