US trade officials propose tariffs of up to 100 percent on French goods to counter digital services tax

The office of the United States Trade Representative (USTR) today proposed retaliatory tariffs of up to 100 percent on French wine, cheese, handbags, makeup, china, and similar items, after concluding that France’s digital services tax discriminates against US multinational tech companies. Alternatively, the USTR proposes imposing fees or restrictions on French services.

Moreover, the US has threatened to impose similar sanctions on other countries that impose taxes targeting US digital firms.

“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,” Ambassador Robert Lighthizer said.

In its 93-page report, the USTR concludes that the French tax’s purpose is to discriminate against Google, Apple, Facebook, Amazon, and other large US digital companies and that the tax does, in fact, so discriminate. In reaching this conclusion, the USTR said that the French tax differs from the European Commission’s proposal for an EU-wide digital services tax because it more directly targets US companies and excludes French companies.

The USTR also said the French tax is inconsistent with prevailing tax principles because it is retroactive and extraterritorial and because the tax is imposed on revenue, not profit.

The USTR rejected France’s assertion that the tax is needed because large digital firms are avoiding corporate tax in Europe, stating that the evidence suggests otherwise. Digital companies, including the subset of digital companies targeted by the French digital services tax, are not subject to a significantly lower effective average tax rate as compared to traditional companies, the USTR maintains.

French officials have said that the digital services tax is designed to be a temporary, stop-gap, measure that will be removed once consensus is reached among countries on updated international tax and transfer pricing rules that better account for digital firm business models.

In fact, France is on board with the latest compromise proposal to update the rules, put forward by the OECD. French Finance Minister Bruno Le Maire on November 26 said he supported the OECD’s “unified approach to pillar one,” which grants additional taxing rights to countries where a multinational’s users or customers reside. Le Marie also said that France supports a “pillar two” minimum tax that adopts nationally-based taxation and a 12.5 percent rate.

According to the USTR, though, unilateral laws like France’s digital services tax undermine progress towards a multilateral approach.

The US’s decision on the DST was announced as President Trump and President Emmanuel Macron head to a two-day NATO summit in the UK. It seems certain that this latest development will be discussed by the two leaders at the gathering. 

The USTR is seeking feedback on its proposals by January 6. A public hearing will be held on January 7. Post-hearing rebuttal comments are requested by January 14.