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US And France Nearing Digital Tax Compromise

by Ulrika Lomas, Tax-News.con, Brussels

30 August 2019


The Governments of France and the United States are reportedly close to settling a dispute surrounding France's digital services tax.

US President has said that he intends to announce new tariffs on imports of French wine in response to the newly introduced French DST, which the US Government says unfairly discriminates against US companies.

However, according to media reports, officials from the French and US Governments at the G7 Summit in Biarritz, France, are negotiating a deal that would see France refunding US companies the difference between their French DST payments and those that would be due under digital tax measures negotiated at OECD level, should the latter be lower.

The French DST imposes a three percent tax rate 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 (USD835m) or more and French sales of at least EUR25m are required to pay the tax.

The tax, approved by the French parliament on July 11, 2019, will to apply to turnover realized in France since January 1, 2019, and is expected to affect around 30 companies supplying digital services in France.

However, on July 10, 2019, the United States Trade Representative (USTR) began an investigation into the effects of the French DST under Section 301 of the Trade Act of 1974, which gives the office broad authority to investigate and respond to a foreign country's unfair trade practices. Once the USTR begins a Section 301 investigation, it seeks a negotiated settlement with the foreign country concerned, which could involve either compensation or the elimination of the particular barrier or practice.

According to the notice of initiation of the investigation, the USTR will initially focus on three areas of concern with regards to the DST, including its "discriminatory nature, its retroactivity, and whether it represents unreasonable tax policy."

TAGS: tax | commerce | tariffs | e-commerce | transfer pricing | France | United States | trade | services | BEPS

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