The action could result in trade remedies, including tariffs, if the U.S. finds that France is engaging in unfair commercial practices.
The Office of the U.S. Trade Representative on Wednesday started an investigation under Section 301 of the Trade Act of 1974 into France’s digital services tax, USTR announced.
That statute provides for the imposition of trade remedies, including tariffs, if the U.S. finds that another country is engaging in unfair trade practices.
The structure of the proposed tax and statements by officials suggest France is unfairly targeting the tax at certain U.S.-based technology companies, USTR said.
The French tax bill would impose a 3% tax on total annual revenues generated by some companies from providing certain digital services to, or aimed at, French users, USTR said.
The tax applies only to companies with total yearly revenues from the covered services of at least 750 million euros globally and 25 million euros in France, USTR said.
“The United States is very concerned that the digital services tax which is expected to pass the French Senate (Thursday) unfairly targets American companies,” U.S. Trade Representative Robert Lighthizer said in a statement. “The president has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”
USTR will issue a Federal Register notice providing information on how members of the public may provide views through written submissions and a public hearing, the agency said.
The U.S. will continue efforts at the Organization for Economic Cooperation and Development (OECD) to reach a multilateral agreement to address challenges to the international tax system posed by an increasingly digitized global economy, USTR said.
Senate Finance Committee Chairman Chuck Grassley, R-Iowa, and ranking member Ron Wyden, D-Ore., as well as House Ways and Means Committee ranking member Kevin Brady, R-Texas, reacted positively to USTR’s announcement.
“The digital services tax that France and other European countries are pursuing is clearly protectionist and unfairly targets American companies in a way that will cost U.S. jobs and harm American workers,” Grassley and Wyden said in a statement. “We have urged the administration to consider all available tools to address this discriminatory action and applaud the U.S. Trade Representative for launching an investigation.”
The senators wrote a letter to Treasury Secretary Steven Mnuchin on June 24 urging the U.S. government to consider “all available tools under U.S. law” to address France’s “targeted, discriminatory taxation” on digital services.
The U.S. would not need to pursue Section 301 remedies if other countries “would abandon these unilateral actions and focus their energies on the multilateral process that is underway at the Organization for Economic Cooperation and Development,” Grassley and Wyden wrote.
Brady in a statement applauded President Donald Trump and Lighthizer for starting the investigation and urged France to reconsider the tax.
The National Foreign Trade Council (NFTC) in a statement Thursday said it “strongly supports” USTR’s action to investigate France’s digital tax policy, “which amounts to a discriminatory tariff on American technology companies and threatens transatlantic trade ties,” NFTC Vice President for Global Trade and Innovation Jake Colvin said in a statement.
Colvin continued, “France’s new digital services tax disproportionately affects innovative American companies while carving out French competitors. The design of this new tax suggests it was tailored specifically to impose a financial burden on successful U.S. companies.”
The Information Technology and Innovation Foundation (ITIF) also stated its support for the Section 301 investigation.
“Not only do digital services taxes circumvent long-standing international rules, they would lead to significant economic distortions and result in less overall economic growth and innovation,” ITIF President Rob Atkinson said in a statement.
The U.S. Chamber of Commerce also criticized France’s digital tax proposal.
“The measure in question appears to be discriminatory in intent as it targets U.S. firms almost exclusively and largely spares French companies,” chamber Senior Vice President for International Policy John Murphy said in a statement. “We have repeatedly urged European governments to address this issue multilaterally in negotiations at the OECD, and the U.S. Chamber urges the French government — and others scrutinizing this issue — to recommit to finding a multilateral solution.”