US threatens 100pc tariffs on French goods over digital tax

Washington

The United States on Monday threatened to impose tariffs of up to 100 percent on $2.4 billion in French goods in retaliation for a digital services tax it says is discriminatory.

French sparkling wine, yogurt and Roquefort cheese are on the list of goods that could be targeted as soon as mid-January after a report from the US Trade Representative's office found the digital tax penalises American tech companies such as Google, Apple, Facebook and Amazon.

The decision "sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on US companies," US Trade Representative Robert Lighthizer said in a statement.

Lighthizer also warned that Washington was considering widening the investigation to look into similar taxes in Austria, Italy, and Turkey.

"The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies, whether through digital services taxes or other efforts that target leading US digital services companies," he said.

DIGITAL SERVICES TAX

The announcement came just hours before President Donald Trump is due to meet his French counterpart Emmanuel Macron on the sidelines of the NATO summit in London on Tuesday.

The French tax, enacted earlier this year, imposes a three percent levy on the revenues earned by technology firms in France, which often come from online advertising and other digital services.

The tax affects companies with least 750 million euros ($830 million) in annual global revenue on their digital activities.

The French tax targets revenue instead of profits, which are often reported by tech giants in low-tax jurisdictions like Ireland in a practice that has enraged governments.

The USTR report "concluded that France's Digital Services Tax (DST) discriminates against US companies, is inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected US companies."

RETALIATORY TARIFFS

After the tax was enacted, Trump in July vowed "substantial" retaliation for the French measure.

The USTR has scheduled public hearings on the proposal to imposes "duties of up to 100 percent on certain French products," and the possibility of "imposing fees or restrictions on French services."

The last date to submit comments on the proposed actions is January 14, and "USTR expects to proceed expeditiously thereafter."

The list of French products subject to potential duties includes cosmetics, porcelain, soap, handbags, butter, and several kinds of cheeses, including Roquefort, Edam and Gruyere.

However, despite Trump's repeated threats to retaliate against French wines, only sparkling wine made the tariff list.

US COMPANIES TARGETTED

Industry groups welcomed the report, with the Information Technology and Innovation Foundation saying in a statement that France's tax is "narrowly and inappropriately targeted to raise revenue only from the largest companies in a small set of industries, many of them American."

While applauding the USTR investigation, the Information Technology Industry Council's vice president of policy Jennifer McCloskey said the group would prefer to avoid "a strong trade response."

"We respectfully urge the United States, France, and all participating governments to focus on a successful and lasting tax policy resolution" at the Organization for Economic Cooperation and Development (OECD), she said in a statement.

GLOBAL DISPUTE

So far, efforts to find a global solution to the dispute over digital taxes have not been successful.

Last month, G20 ministers meeting in Washington opened talks on an international system to tax global tech giants that the OECD hopes would take effect by June.

In an interview Monday prior to the USTR announcement, French Finance Minister Bruno Le Maire accused Washington of losing interest in such a deal.

"Having demanded an international solution from the OECD, it (Washington) now isn't sure it wants one," Le Maire told France Inter radio.

"We can see that the United States is shifting into reverse."

Public outrage has grown over the practice of profit shifting, which critics say deprives governments of their fair share of tax revenue.