Note: This analysis is part of our series on geopolitical tensions in digital policy. The series starts by dissecting a recent US memorandum that scrutinises different types of foreign digital policy. Topical pieces, including this, then distill the global state of affairs and explain the cause of geopolitical tensions in one type of digital policy.

The recent US memorandum criticises “regulations governing digital services that are more burdensome and restrictive on US companies than domestic companies.” One way this could occur is through threshold-based obligations in digital policies. Governments across the globe use thresholds to establish different obligations for different types of companies, for instance large and small companies. Below, we outline how governments apply thresholds in digital competition, content moderation, and tax rules and explain how they contribute to geopolitical tensions, using the Digital Policy Alert database. 

The thresholds that trigger obligations in digital policies can be quantitative or qualitative. Quantitative thresholds comprise measurable metrics, such as a company's monthly users, number of employees, market capitalization, or revenue. Qualitative thresholds consider non-measurable factors, such as the sector in which a company operates or the kind of product or service it sells. 

Competition regimes rely on thresholds to determine whether companies are in a position to harm competition by abusing or consolidating their market power. Based on these thresholds, governments then apply rules regarding unilateral conduct, merger control, and anti-competitive agreements. We focus on examples in the EU, the UK, and Japan. 

The EU Digital Markets Act targets gatekeepers that provide core platform services. Gatekeepers are designated by the European Commission and must adhere to rules regarding both unilateral conduct, such as not combining personal data across services, and mergers. Specifically, gatekeepers include companies:

• with an annual EU turnover over EUR 7.5 billion (last three years) or market capitalisation over EUR 75 billion (last year), 

• that operate a core platform service in at least three EU countries, 

• reaching more than 45 million monthly “end users” and 10'000 “business users” in the last three years. 

The UK Digital Markets, Competition and Consumers Act focuses on companies with strategic market status in digital markets. The Competition and Markets Authority can designate companies if their annual turnover exceeds GBP 25 billion (global) or GBP 1 billion (local), and if they have “substantial and entrenched market power” and hold a position of “strategic significance.” Designated companies must avoid discrimination and ensure interoperability, among other duties. 

Japan is implementing new competition rules for designated providers of smartphone operating systems. An order specified the threshold of 40 million average monthly users in Japan for obligations to apply. Designated providers cannot unfairly disadvantage competitors, restrict consumer choice, discriminate against app developers, or prioritise own products, among other obligations. Recently, the Japan Fair Trade Commission designated Apple, iTunes, and Google. 

Online content rules rely on a mix of quantitative and qualitative thresholds to reduce the dissemination of illegal content, among other objectives. Content moderation rules generally apply to all digital providers. Governments use thresholds to identify companies that play a larger role in disseminating content, demanding additional efforts. We focus on the UK, the EU, and Australia. 

The UK Online Safety Act establishes a content moderation framework, including additional obligations for providers of “categorised services” that reach certain thresholds. Thresholds are specified in regulations that are still under deliberation and currently comprise: 

• Category 1: user-to-user services using content recommender systems with over 34 million monthly UK users, or 7 million monthly UK users if they include a functionality to forward or share user-generated content. 

• Category 2A: Search engines with over 7 million average monthly UK users (with some exceptions).

• Category 2B: user-to-user services with over 3 million average monthly UK users that include a functionality for users to send direct messages.

The EU Digital Services Act establishes obligations for intermediary services, establishing specific obligations for “very large” online platforms and search engines. These obligations apply based on a quantitative threshold of 45 million average monthly users in the EU. Beyond general obligations on transparency and content moderation, “very large” providers must assess and mitigate risks, undergo audits, and grant data access to vetted researchers, among others. 

Under Australia's Online Safety Act, several sectoral “Online Safety Codes” have been developed.

• The Internet Search Engine Services Code applies a threshold of 500,000 monthly Australian users for obligations on the protection of Australian end users from illegal content to apply. 

• The Social Media Services Code introduces mandatory and optional compliance measures for social media service providers based on three risk tiers. Risk assessment criteria include the services’ purpose, end users in Australia and globally, and discoverability, among others. 

• Other codes apply to providers of app distribution services, hosting services, internet carriage services, and equipment.

Tax regimes aim to generate tax revenue based on the value that local citizens provide for foreign digital service providers. Governments use thresholds to determine which companies draw the most value from local users, requiring them to pay taxes in the absence of a local physical presence. We focus on digital services taxes (DSTs), which feature prominently in the US memorandum and are analysed in depth in another piece of this series.

DSTs in Europe apply two quantitative thresholds: EUR 750 million in global annual revenue and a country-specific threshold on annual revenue generated by providing digital services to local users. 

• France applies a threshold of EUR 25 million in local revenue.

• In Spain, the local revenue comprises EUR 3 million. 

• Italy initially applied but recently removed its EUR 5.5 million local revenue threshold. 

• Austria applies a EUR 25 million threshold, albeit specific to online advertising revenue. 

Countries in other regions also follow the dual-threshold model. Turkey combines the EUR 750 million global annual revenue threshold with a local revenue threshold of TRY 20 million (approx. USD 525,000). In Canada, the global threshold comprises EUR 750 million the local threshold comprises CAD 20 million (approx. USD 14 million)). The UK couples a global threshold of GBP 500 million with a local revenue threshold of GBP 25 million. 

Finally, some countries establish only a local annual revenue threshold. These include Malaysia (MYR 500,000, approx. USD 111,000), Kenya (approx. USD 40,000), and Nigeria (NGN 25 million, approx. USD 16,000), although Nigeria additionally combines qualitative thresholds. from its tax.

The use of thresholds per se is not the cause of geopolitical tensions. Thresholds enable governments to tailor the obligations they impose on companies based on the context of the regulated behaviour. For example, excluding small and medium enterprises from certain obligations is common and uncontroversial. The US also applies thresholds in federal data transfer rules as well as state-level privacy laws and regulations, among others. 

Geopolitical tensions stem from the perception that thresholds disproportionately cover US companies. To date, the world’s largest technology companies, in terms of market capitalisation and revenues, are US companies. But the scalability of digital business models has enabled players from other regions to grow rapidly. Thresholds, especially those based on size, thus tend to cover US companies as well as companies based elsewhere. The EU Digital Services Act, for instance, applies a quantitative threshold (45 million monthly users) that currently covers eleven US companies, seven EU companies, two Chinese companies, and one Singaporean and Canadian company, respectively. The EU Digital Markets Act, which combines this threshold with another quantitative and qualitative threshold, covers five US companies, one EU company, and one Chinese company.

Although the memorandum does not explicitly mention thresholds, they offer a tangible argument for US authorities’ pushback on foreign digital policies. Namely, thresholds could be used to argue that regulations governing digital services “are more burdensome and restrictive on US companies than domestic companies” and “discriminatory.” 

Thresholds could thus be relevant to the following instructions issued by the memorandum: 

• Multiple authorities will analyse foreign trade and regulatory practices deemed to be discriminatory. Specifically, the Treasury Secretary, the Commerce Secretary, and the US Trade Representative will jointly identify practices that “discriminate against, disproportionately affect, or otherwise undermine the global competitiveness or intended operation” of US companies. The authorities will also recommend actions to counter such practices. The results will be provided by the US Trade Representative in April 2025.

• Tax regimes will be scrutinised separately. The US Trade Representative will analyse digital services taxes while the Treasury Secretary will analyse other “discriminatory taxes.” Results are expected in April 2025.

To prepare for these next steps, foreign governments should a) analyse which thresholds they apply in which policy areas, b) consider how many local, foreign, and especially US firms are covered by each threshold, and c) outline why each threshold is suited to address the policy objective at hand.