A United States Trade Representative (USTR) investigation into France’s Digital Services Tax (DST) was initiated on July 10, 2019, according to Sec 302(b)(1)(A) of the Trade Act of 1974 and was completed on December 2, 2019.
The USTR concluded that France’s DST is unreasonable and discriminatory, and burdens or restricts US commerce. The DST is expected to affect roughly 30 multinational companies. Of those 30 companies, 17 are large United States-headquartered multinationals, but only one is headquartered in France.
The USTR claimed de facto discrimination since the France DST diverges from US Tax policy principles and is based on tax revenue rather than income.
The USTR’s view is that the DST is designed to penalize US companies. In July 2019, the USTR recommended retaliatory duties of up to 100% on $2.4b of French goods, including cheese, wine, and handbags.
While France suspended its DST in January 2020 for the remainder of the year and agreed to negotiate with the United States at the Organisation for Economic Co-operation and Development (OECD), the USTR decided ultimately to retaliate, announcing on July 10, 2020, that it would impose Section 301 duties of 25% on approximately $1.3b of French products.
The final list is narrower and limited to certain cosmetics, soaps, and leather goods in consideration of the amount of DST taxes that would be assessed by France on U.S. companies. The United States delayed implementation until January 6, 2021, while negotiations were taking place.
“This issue between the US and France will only be the beginning of the conversation. Italy, Spain, Austria, and the United Kingdom have all announced plans to implement digital services taxes, imposing duties on online activity that takes place in those countries, regardless of whether the company has a physical presence there.
It is unclear how the new US Administration will view these developments; however, this constitutes one more trade action in what has already been a challenging year for compliance professionals. Should you have any questions on these prospective additional duties, and how they may impact your business, don’t hesitate to reach out to Tradewin. We’re here to help.