French Digital Tax May Violate WTO Commitments, but US Warned Against Drastic Response in Section 301 Hearing
France’s digital service tax (DST) is a radical departure from international norm, discriminates against U.S. companies and undermines efforts to reach global, multilateral consensus on the digital economy, tech companies and trade groups told U.S. officials on Aug. 19 (see 1908140023). Witnesses from Facebook, Google, Amazon, the Information Technology and Innovation Foundation, the Computer & Communications Industry Association and the Information Technology Industry Council testified before the Office of the U.S. Trade Representative and officials from various federal agencies. Representatives from the departments of Commerce, State, Agriculture, Homeland Security and others questioned tech witnesses as part of the USTR’s Section 301 investigation of France’s DST (see 1907100076).
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Industry officials repeatedly sought a multilateral, international tax agreement from the Organisation for Economic Co-operation and Development to override France or any other unilateral efforts to tax the industry. CCIA supports an “aggressive” response from the administration, Chief Operating Officer Matt Schruers said. The Tax Foundation Global Projects Director Daniel Bunn warned the administration against taking drastic retaliatory action against the DST, which he said essentially is a tariff. President Donald Trump’s ongoing trade wars will lead to lower wages and fewer jobs for Americans in the long-term, Bunn said.
The DST’s high revenue threshold is discriminatory against American tech companies, said Amazon International Tax and Policy Planning Director Peter Hiltz. Sweden, Ireland and other regional economies favor a consensus approach from the OECD, said Google Trade Policy Counsel Nicholas Bramble. But Spain, the U.K. and others are considering unilateral approaches similar to France’s, he said. If unchallenged, the DST provides political cover for about a dozen other countries weighing similar proposals, said Baker & McKenzie partner Gary Sprague, speaking on behalf of Facebook, Google, Microsoft, Twitter and others. This is a dangerous trend in international law, said ITIF Senior Fellow Joe Kennedy.
“Self-interested” tax principles will undermine any confidence in international frameworks, said National Foreign Trade Council President Rufus Yerxa: “If other countries follow, we're in a new era of tax policy.” Since the DST targets gross revenue and not profit, it threatens companies that aren't profitable and are borrowing to grow, said Facebook Global Tax Policy Head Alan Lee. The U.S. can use its negotiating position at OECD to remove DSTs from future tax agreements, said the Tax Foundation's Bunn. France’s DST contradicts French obligations to the World Trade Organization and the EU, said CCIA's Schruers. One question is whether the DST is an illegal form of state aid under EU law that favors domestic companies over foreign competitors.