US and France negotiate digital tax agreement

There are signs that France and the US are looking for a way to end their dispute over French plans to introduce a digital tax, which has seen the US threaten retaliatory tariffs on French products

At the end of last year, the US warned it may levy 100% trade tariffs on up to $2.4bn (£1.85bn) of French goods, including cheese and champagne, in response to a federal investigation which concluded that France’s digital services tax (DST) discriminated against US companies.

This week, following a meeting with President Donald Trump, French prime minister Emmanuel Macron tweeted: ‘Great discussion with @realDonaldTrump on digital tax. We will work together on a good agreement to avoid tariff escalation.’

Trump tweeted ‘Excellent!’ in response, while the White House put out a statement saying the two heads had ‘agreed it is important to complete successful negotiations on the digital services tax.’

The US and France are believed to have agreed to hold back on any new tariffs before the end of 2020, to allow time for continued discussions within the OECD base erosion and profit shifting (BEPS) framework on digital taxation. European finance ministers are due at the OECD this week for an update on progress.

French Finance Minister Bruno Le Maire said: ‘We now have an agreement between the two presidents to avoid any tariff escalation and avoid any trade war.

‘It remains a difficult negotiation - with digital tax, the devil is in the details and we need to resolve the details.’

France’s DST, which applied from the beginning of 2019, imposes a 3% tax on annual revenues generated by some companies that provide certain digital services to, or aimed at, French users.

The tax applies only to companies with annual revenues from the covered services of at least €750m (£640m) globally and €25m (£21m) in France.

An investigation by the Office of the US Trade Representative (USTR) concluded the tax discriminates against US digital companies, such as Google, Apple, Facebook, and Amazon.

It claimed the revenue thresholds have the effect of subjecting to the DST larger companies, which, in the three covered sectors, tend to be US companies, while exempting smaller companies, particularly those that operate only in France.

In addition, the French DST is inconsistent with prevailing tax principles on account of its retroactivity, its application to revenue rather than income, its extraterritorial application, and its purpose of penalising particular US technology companies for their commercial success, USTR found.

The UK is also planning to introduce a 2% digital services tax from April 2020 but US treasury secretary Steve Mnuchin warned today that any tax on multinationals like Google and Facebook would result in increased US tariffs on UK imports. 

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