The US Trade Representative found the tax discriminatory, and suggested to respond with restrictions and tariffs up to 100% on some French products.
Background: France was the first European country to introduce a digital services tax (DST) during 2019, after the failure to reach an agreement at EU-level and despite ongoing efforts to find a common approach within the OECD. In July 2019, the proposal became law. Since then, digital services with a global annual turnover higher than €750m, and with an annual turnover in France of €25m, have to pay a 3% tax on their digital turnover realised in France.
The US Government responds: On 10 July 2019, two weeks before the law was adopted, the US Trade Representative (USTR) initiated an investigation on the French DST to determine whether it is unreasonable or discriminatory against US trade. This week, the USTR came to a decision, and issued a report in which it finds the DST discriminates against US companies, is inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected US companies (specifically, Google, Apple, Facebook, and Amazon). The French DST is considered inconsistent with prevailing tax principles due to its retroactivity, its application to revenue rather than income, its extraterritorial application, and its purpose of “penalizing particular US technology companies”.
High tariffs and restrictions on French products could follow: As a result of its findings, the USTR proposes additional duties of up to 100% on certain French products, and seeks comment on the option of imposing fees or restrictions on French services. The list of French products subject to potential duties includes an approximate trade value of USD2.4bn.
Next steps: The USTR is now seeking comments on its proposals by 6 January 2020, and will hold a public hearing on 7 January 2020. It will then accept post-hearing rebuttal comments by 14 January 2020, and make a decision shortly after. In the meantime, other countries such as the UK are considering similar tax initiatives.
