Is a tariff on software (or "information") possible?

Question

Thinking about the recently imposed trade tariffs by the Trump administration and counter-tariffs from Canada, I noticed they're all on physical tangible goods that pass through customs: metals, lumber, certain consumer products and so on.

But often a country or an economy has significant exports or imports in intangible goods and services that don't exactly "pass through" customs, with "information" (as opposed to matter) being the primary example, as it can take the form of software, databases, literature and so on. (Though at least with literature in the printed-form you could tariff the import/export of physical books or tax domestic publishers who print foreign volumes.) - so if tariffs were imposed on another country that relied heavily on software or information exports in general, how would it work?

For one thing, software is very difficult to value: software often has a stated cash value of $0.00 (especially open-source software and shareware) - often those companies make their money from selling licences which are just ordinary cross-border credit-card transactions, or they might have a payment processor in the other nation - and they might make money by selling support-and-services instead of licenses (e.g. Canonical). These kinds of "exports" are very difficult to impose trade-barriers on without scrutinizing every cross-border transaction (or just impossible if you consider technologies like Bitcoin).

So supposing that in addition to banning Mercedes-Benz, Trump decides to place a tariff on hacker operating systems written by the Soviets, what would happen and how would it be enforced?

Answer 1

Copyright enforcement is already a real issue and some cryptography is embargoed.

In many cases online sales take applicable taxes into account based on the location of buyer and seller. Adding an additional line into those websites would not be insurmountable and requiring it of software dealers poses no obvious problem.

Actually getting money out of linux per se might be hard, and certainly there would be leaks, but taxing Canonical or making them acquire go through some import/export license would be possible.

Answer 2

Enforcing tariffs on imported software and services is a special case of the more general problem of enforcing taxation.

Taxes on goods and services generally apply the tax at a percentage of whatever value is paid. So open source software itself would not be taxed. If someone pays for a license to proprietary software or for support services then taxes can be levied as a percentage of the amount paid. Fixed value taxes (e.g. $100 per item of software) could be applied in theory, but in practice are too vulnerable to tax avoidance by playing games with the definition of "item".

Once the law is passed enforcement is just a matter of catching people who break it. Private individuals find it trivial to avoid such laws, but once you have a business you have employees with no financial stake in your law breaking. Most business owners find it simpler and less stressful to just obey the law on such matters.

There is a definitional issue with enforcing import duties on software that does not arise with physical goods. If I make widgets in Elbonia and then export them to the US, I can be charged duty on every widget that crosses the border. However if I write software then I only need to move one copy across the border to my US agent, and then authorise them to sell as many copies as they like without import duty as all the sales occur in the US. Stopping me from repatriating my money back to Elbonia means adding exchange controls.

Answer 3

What with all the KYC (know your customer) and AML (anti money laundering) regulations, if you pay for it, surely yes.