The U.S. Trade Representative on Monday said that it has determined that France’s digital services tax discriminates against U.S. companies, and is proposing tariffs of up to 100 percent on $2.4 billion of French products.
“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,” U.S. Trade Representative Robert Lighthizer said in a news release.
USTR in July announced an investigation into the French digital services tax, in order to determine whether it’s unreasonable or discriminatory and burdens U.S. commerce. The investigation took place under section 301 of the U.S. Trade Act of 1974, the same section that Trump has used to justify tariffs on Chinese goods.
USTR announced last week that it would be issuing its findings in its investigation Monday, after a 90-day deadline for negotiations between the U.S. and France expired.
French President Emmanuel Macron signed legislation in July to establish a 3-percent tax on large companies’ revenues from digital services. The tax applies retroactively to Jan. 1.
The tax has drawn criticism from major U.S. tech companies — such as Google, Facebook and Amazon — as well as from policymakers on both sides of the aisle, who argue that the law is targeting American businesses.
In a report issued Monday, USTR said that the French tax was intended to discriminate against U.S. tech companies, features of the tax make it particularly burdensome for U.S. businesses, and the tax’s application to a small group of companies conflicts with international tax principles.
USTR published a notice in the Federal Register with a preliminary list of French products that could be subject to tariffs, including sparkling wine, cheese, makeup and handbags. USTR also said that it’s considering “whether to impose 6 fees or restrictions on services of France.”
Public comments on USTR’s proposed actions are due on Jan 6, and a public hearing is scheduled for the following day.
Silicon Valley largely applauded the USTR’s conclusion on Monday night, deriding the French proposal as an effort to harm the world’s largest tech companies, most of which are based in the U.S.
“Today USTR is defending the internet, which is a great American export,” said Jordan Hass, director of trade policy for the Internet Association, an industry group that represents Amazon, Google, Facebook and other Internet companies. “Discriminatory digital services taxes act as a trade barrier for innovative American companies and small businesses often face the biggest burden from them.”
The U.S. and France are continuing to work together through the Organization of Economic Cooperation and Development (OECD), an intergovernmental economic organization, on international tax rules. The OECD is aiming to come up with a solution to tax challenges of the digital economy by the end of next year.
The industry has largely thrown its support behind the OECD process. “Once again, we respectfully urge the United States, France, and all participating governments to focus on a successful and lasting tax policy resolution at the OECD,” Jennifer McCloskey, vice president of policy at the Information Technology Industry Council, said in a statement.
Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and ranking member Ron Wyden (D-Ore.) said in a statement that they “welcome this step from USTR on behalf of U.S. companies being unfairly targeted and harmed by the French tax.
“We encourage other member states considering similar actions to work within the OECD framework toward a comprehensive solution,” the senators added.
Lighthizer said that his office is also looking into whether to open investigations into digital services taxes in 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,” he said.