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France And US Seek End To Digital Tax Dispute

by Ulrika Lomas,, Brussels

15 January 2020

According to French Finance Minister Bruno Le Maire, France and the United States will in the next two weeks attempt to reach a compromise over their ongoing dispute regarding France's new digital services tax (DST).

The US has threatened to retaliate against the measure, proposing additional duties on certain French imports to the US.

Addressing a press conference alongside the European Commissioner for Trade, Phil Hogan, Le Maire said that France and the US have agreed to "redouble our efforts in the coming days to try to find a compromise on digital taxation within the framework of the OECD."

Le Maire is hopeful that such a compromise can be reached by the time he is due to meet with US Treasury Secretary Steven Mnuchin at the World Economic Forum in Switzerland, which is due to commence on January 21, 2020.

However, Hogan said, should the two governments fail to reach an agreement, the EU will consider countermeasures to any additional duties imposed on French products.

The French DST is a three percent tax on the revenue of digital companies providing advertising services, selling user data for advertising purposes, or performing intermediation services. Companies with global revenues of EUR750m (USD838m) or more and French sales of at least EUR25m are required to pay the tax.

The US argues that the tax unfairly discriminates against US-based companies and is currently considering the application of additional duties of 100 percent on certain French imports with a trade value of USD2.4bn.

The US has also suggested that it could initiate similar measures against other countries applying "interim" DSTs ahead of the introduction of forthcoming recommendations from the OECD on digital taxation. In a letter to the OECD dated December 3, 2019, Mnuchin urged countries to suspend such initiatives, arguing that they have "a discriminatory impact on US-based businesses and are inconsistent with the architecture of current international tax rules which seek to tax net income rather than gross revenues."

Mnuchin also appeared to suggest that the US does not support the direction which international talks are taking towards a solution to the tax challenges of the digital economy, calling in his letter for a "safe harbor" regime as a partial answer to these problems.

OECD guidelines on safe harbors define a safe harbor as "a provision that applies to a defined category of taxpayers or transactions and that relieves eligible taxpayers from certain obligations otherwise imposed by a country's general transfer pricing rules."

French Finance Minister Bruno Le Maire recently said the US proposal would make the OECD's digital tax plans "optional" for digital businesses and as such were not acceptable, according to the Agence France-Presse news agency.

TAGS: Finance | tax | business | European Commission | commerce | internet | e-commerce | transfer pricing | France | Switzerland | United States | trade | services | Europe | BEPS

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