The US has 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) discriminates against US companies
The Office of the US Trade Representative (USTR) initiated the Section 301 investigation into the French DST legislation in mid-July and has now published the first segment of its work. This has found that the DST is ‘inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected US companies.’
DST, which applies from the beginning of this year, 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.
The USTR says the tax discriminates against US digital companies, such as Google, Apple, Facebook, and Amazon. It claims 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.
Ambassador Robert Lighthizer said: ‘USTR’s decision today sends a clear signal that the US will take action against digital tax regimes that discriminate or otherwise impose undue burdens on US companies.
‘Indeed, USTR is exploring whether to open Section 301 investigations into the digital services taxes of Austria, Italy, and Turkey.
‘The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies, whether through digital services taxes or other efforts that target leading US digital services companies.’
In response, the US says it proposes imposing additional duties of up to 100% on certain French products, as well as other fees or restrictions on French services. The list of French products subject to potential duties includes 63 tariff subheadings with an approximate trade value of $2.4 bn. The USTR said the value of any US action through either duties or fees may take into account the level of harm to the US economy resulting from the DST.
The global tech trade association the Information Technology Industry Council (ITI), whose members include a range of US tech giants such as Amazon, Apple, eBay, Google, IBM, and Facebook as well as PwC and EY, has welcomed the USTR’s report.
Jennifer McCloskey, ITI’s vice president of policy, said: ‘We applaud USTR’s efforts to investigate France’s digital services tax and welcome the result of its examination.
‘Critically, USTR recognised the discriminatory aspects of the French digital services tax and intends to prepare a strong trade response should the measure remain in place. We hope to avoid this outcome.
‘Once again, we respectfully urge the US, France, and all participating governments to focus on a successful and lasting tax policy resolution at the OECD.’
The USTR proposals are open for public comment until 6 January 2020. Once the consultation responses have been considered, USTR says it will proceed ‘expeditiously’.