By Julie Martin, MNE Tax
President Donald Trump today announced in a tweet that the US will retaliate against France in response to its imposition of a new digital services tax. The tweet suggests that retaliation might come in the form of tariffs on French wine.
“France just put a digital tax on our great American technology companies. If anybody taxes them, it should be their home Country, the USA,” Trump tweeted.
“We will announce a substantial reciprocal action on Macron’s foolishness shortly. I’ve always said American wine is better than French wine!”
France just put a digital tax on our great American technology companies. If anybody taxes them, it should be their home Country, the USA. We will announce a substantial reciprocal action on Macron’s foolishness shortly. I’ve always said American wine is better than French wine!
— Donald J. Trump (@realDonaldTrump) July 26, 2019
The French legislation, which imposes a 3 percent tax on the revenue of large digital firms, was signed by President Emmanuel Macron on Thursday.
The tax applies to multinationals which, during the previous year, had worldwide revenue exceeding EUR 750M (approx. USD 835M) from sales of digital services and revenue in France exceeding EUR 25M (approx. USD 27.8) that year. Digital services subject to the new tax include intermediation services and certain advertising services. The tax is effective from the day after the law was published, on October 31, 2019.
While the tax applies to multinationals headquartered in all countries, the US believes the burden of the tax unfairly falls on US companies. US Trade Representative Robert E. Lighthizer launched an investigation into the tax earlier this month under Section 301 of the Trade Act of 1974. The law gives the President broad powers to investigate and respond to a foreign country’s unfair trade practices and take appropriate action, including retaliation if needed.
The French tax is intended to be a temporary measure, applicable until worldwide agreement is reached on rules that more appropriately tax digital multinationals. Because outdated international tax and transfer pricing rules base taxation on physical presence, digital multinationals often pay little tax in countries where they operate yet it has been difficult to get countries to agree to change the rules, particularly countries such as the US where these large multinationals are headquartered.
It was not until France and other countries — such as Austria, Italy, the UK, Poland, and the Czech Republic — began to threaten enactment of unilateral digital services taxes did the US return to the negotiating table. This led to an OECD effort to reach consensus on new international tax and transfer pricing rules by the end of 2020, which is now underway..
Julie Martin
Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.
Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.
Julie can be reached at [email protected].
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