US tech giants oppose French digital tax plans

The US government’s investigation into French plans to implement a digital services tax (DST) has started with US tech companies arguing it is a discriminatory move and calling for multilateral cooperation to address changes to the international tax system

The Office of the US Trade Representative (USTR) initiated the Section 301 investigation into the French digital services tax proposals in mid-July and held its first public hearing this week.  Deadline for all submissions is the end of the month.

The French digital services tax law 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 (£686m) globally and €25m (£23m) in France.

The USTR argued that the services covered are ones where US firms are global leaders. Its investigation will consider whether this amounts to de facto discrimination against US companies, since the revenue thresholds mainly apply to US organisations while exempting smaller companies, particularly those that operate only in France.

It also says the digital services tax would be a substantively new tax that applies retrospectively to 1 January 2019 and claims this feature calls into question the fairness of the DST. Further, since the tax is retrospective, companies covered by the digital services tax may not track the data necessary to calculate their potential liability back to the beginning of 2019.

The final point of opposition is that the tax policy is unreasonable. The USTR says the digital services tax appears to diverge from norms reflected in the US tax system and the international tax system in several respects, notably extraterritoriality; taxing revenue not income; and a purpose of penalizing particular technology companies for their commercial success.

If the USTR investigation finds that the French DST is unreasonable or discriminatory and burdens or restricts US commerce, that could result in the US government taking action such as implementing trade tariffs on French products.

The Information Technology Industry Council (ITI), whose members are a range of US tech giants including Apple, Amazon, Google and IBM, as well as PwC and EY, has made a submission to the section 301 investigation committee citing several key concerns.

These include the limited range of business activities in scope. ITI says the narrow focus on a subset of digital companies appears designed to single out a small number of companies, and a fraction of business models, that would be affected by the new tax.

In addition, the French tax includes two revenue thresholds, which serve to limit its scope to a small subset of the largest digitized companies, and as a result may disproportionately impact US-headquartered companies.

ITI also raises the likelihood of global tax policy fragmentation. It says the imposition of individual country, gross revenue-based measures targeting different subsets of an undefinable ‘digital economy’ will give rise to a complex and convoluted patchwork approach to international taxation.

The industry group has reiterated its call for countries to commit to the ongoing, multilateral OECD process to address concerns over digital taxation.

Its submission stated: ‘France’s unilateral digital services tax could create a troubling precedent and departs from important multilateral progress toward stable, long-lasting international tax policies.

‘While we support the US trade representative's efforts to fully investigate the trade implications of France’s unilateral action, our ultimate goal is an outcome in which all parties commit to a multilateral solution on appropriate international income tax reforms.’

Details of US Section 301 investigation

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