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US Threatens France with Massive Tariffs due to Digital Tax

France, the IT Industry & US Congress Reacts to USTR’s Digital Tax Report

Earlier this week, the Office of the US Trade Representative (USTR) wrapped up its investigation into France’s digital services tax (DST), deeming it discriminatory against US companies such as Google, Apple, Facebook and Amazon.

More specifically, the USTR’s analysis highlighted that 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 penalizing particular U.S. technology companies.”

As a result of the report’s conclusions, the USTR has proposed implementing a series of tariffs on French products entering the US.

63 tariff subheadings will be affected by the measure with a certain group of French products, including champagne, soaps, handbags, porcelain, cheeses, makeup and yoghurt, being slammed with a 100 per cent tariff.

France’s exports to the US are currently valued at about $2.4 billion.

“USTR’s decision today sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on U.S. companies,” said the US Trade Representative, Ambassador Robert Lighthizer.

“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 U.S. companies, whether through digital services taxes or other efforts that target leading U.S. digital services companies,” Lighthizer added

The USTR will be accepting pubic comments on the proposal up until January 6, 2020.

France, the IT Industry & US Congress Reacts to USTR’s Digital Tax Report

France, the IT Industry & US Congress Reacts to USTR’s Digital Tax Report

Following this announcement, France’s Finance Minister, Bruno Le Maire, said his country would counter with “a strong riposte.”

“If there should be new sanctions from the Americans, the EU is ready to retaliate… It’s in no one’s interest, it’s not in the interest of growth, or of political stability,” Le Maire said.

However, Le Maire reiterated that France is ready to drop its DST if a global solution agreeable to all is found.

“France is ready (to accept the OECD proposal). If the US is also ready, that’s the end of the issue, that’s the end of the difficulties between France, the US and the EU,” he concluded.

The European Commission stood by France letting the US know that the EU would ““react as one” if this latest trade dispute is not “amicably” resolved.

On the other hand, industry representatives in the US, as well as congress members, supported the USTR’s harsh criticism of France’s DST.

Jennifer McCloskey, who serves as VP at the Information Technology Industry Council, a trade association for the IT industry, said, “USTR recognised the discriminatory aspects of France’s digital services tax and intends to prepare a strong trade response should the measure remain in place. We hope to avoid this outcome.”

Furthermore, Senators Chuck Grassley (R-IA) and Ron Wyden (D-OR) who head the Senate’s Finance Committee, said in a joint statement, “The French digital services tax is unreasonable, protectionist and discriminatory.”

“Taking premature action that will adversely and disproportionately affect another OECD member state is contrary to the organisation’s goals and shouldn’t stand,” the congressmen concluded.

Éric-André Martin of the French Institute of International Relations (IFRI) believes France has complicated matters by pushing forward with its DST.

“France put itself in a difficult situation,” Martin said. “The tariff problem is becoming bilateral while it should be multilateral.”

“It is French farmers who will bear the weight of the sanctions,” he concluded.

Bloomberg’s Leonid Bershidsky, however, believes that while the US’s threat is somewhat disproportionate, the rationale behind it is rather sound.

Bershidsky writes: “The punitive tariffs on French goods proposed by the Office of the U.S. Trade Representative are a disproportionate response to France’s digital services tax. But that’s what French President Emmanuel Macron gets for his impatience to be the first to tax multinational Internet platforms without waiting for international organizations to agree on a coordinated solution.”

What are your thoughts on the USTR’s proposed punitive measures against France’s DST? Excessive or well deserved?

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