The Big Story: Concerns mount over digital tax negotiations. World economic leaders at the G20 summit in Saudi Arabia over the weekend warned that a dispute between the U.S. and European countries over the implementation of digital service taxes could pose a threat to the global economy if an agreement is not reached. The Organisation for Economic Co-operation and Development (OECD) has set an end-of-year deadline to negotiate a global tax overhaul that would allow countries to tax large digital service providers who do not necessarily have a physical presence within their borders.
France and the U.S. agreed to a temporary truce last month on a French digital services tax that would have imposed a three percent levy on certain online platforms. In exchange, the U.S. agreed to not impose retaliatory tariffs of as much as 100 percent on $2.4 billion worth of French goods. The cease-fire remains in effect until the end of the year in order to allow time for the OECD to negotiate a new global tax code, despite the fact that other countries—including Spain, the United Kingdom, and Italy—have all introduced their own digital taxes that would disproportionately target U.S. tech companies. The inability to negotiate an international agreement could result in the imposition of additional U.S. tariffs against other countries that introduce their own digital service taxes.
The failure to reach an international agreement on a global tax overhaul will lead to a country-by-country approach to digital taxes that will result in a patchwork of international laws, and a reliance on harmful tariffs that will have a profoundly negative impact on the U.S. startup ecosystem. We are also concerned that several states have proposed their own legally suspect digital tax measures as a result of these international proposals, which would likely disincentivize some platforms from reaching Internet users that are critical to early-stage startups. It's important for the OECD to reach a global tax agreement that minimizes harm to entrepreneurs, while also sidestepping the possibility of retaliatory tariffs and harmful levies that will likely be passed down to startups that rely on larger U.S. tech platforms for their services.
Policy Roundup:
States seek to expand broadband access. A new report from The Pew Charitable Trusts found that states are taking a number of critical steps to expand broadband access to underserved and rural communities, including creating policy frameworks for broadband deployment. As we’ve previously noted, entrepreneurs deeply care about efforts to expand Internet access because connectivity is often one of the major contributing factors to a startup ecosystem’s success.
Congress, IRS looking into cryptocurrencies next week. House lawmakers and federal officials are holding several discussions next week regarding blockchain technology and cryptocurrencies. The House Small Business Committee is planning to hold a hearing next Wednesday at 11:30 a.m. to discuss “the benefits of blockchain technology for small businesses.” The House Financial Services Committee is also holding a hearing at 10 a.m. next Wednesday to examine “how bad actors exploit financial systems,” a panel that is likely to discuss some lawmakers’ concerns about the various uses of digital currencies. As we noted earlier this week, the IRS is also planning to hold a summit with cryptocurrency startups and advocates next Tuesday to discuss ways of balancing “taxpayer service with regulatory enforcement.”
Court reaffirms right of online platforms to moderate content. The Ninth U.S. Circuit Court of Appeals in San Francisco unanimously ruled this week that private Internet platforms are not “subject to judicial scrutiny under the First Amendment” and can moderate online content as they see fit. The expected decision came after Prager University—a nonprofit that produces videos from a conservative perspective—sued YouTube for making some of their videos less accessible to certain users.
White House planning 5G summit. The Trump administration is reportedly planning to hold a 5G summit with global tech leaders in April to discuss ways of ensuring that Chinese telecoms companies like Huawei do not dominate the development of the next-generation wireless technologies.
Startup Roundup:
#StartupsEverywhere: Charlotte, North Carolina. Vishion is a new app-based search engine that lets users search for products from a variety of popular brands by color and hue. The app, which went live earlier this week, is already positioning itself as a critical tool for interior designers and homeowners alike.
U.S. startup investments down after unicorn troubles. Although venture capitalists invested around $763 billion in U.S. startups over the last decade, financial backers are infusing less money into young companies after several prominent “unicorns” experienced financial difficulties last year. Data from the National Venture Capital Association and PitchBook found that 2,215 U.S. startups raised money in the fourth quarter of 2019, the fewest number of startups since the end of 2016.
