French Finance Minister Bruno Le Maire warned that his government would immediately go to the WTO to fight any sanctions imposed by the United States, which found that France’s digital services tax discriminates against U.S. companies.
Speaking during a January 6 France Inter radio program, Le Maire addressed the ongoing controversy between his country and the United States over the DST, a 3 percent revenue-based tax that took retroactive effect January 1, 2019.
The tax, intended as a temporary measure, is levied on turnover from online advertising, the sale of data for advertising purposes, and fees derived from linking users to online sales platforms, and it applies to companies with €750 million in global digital sales and more than €25 million in sales in France.
The Office of the U.S. Trade Representative (USTR) opened an investigation into the tax July 10 under section 301 of the Trade Act of 1974. On December 2 the USTR recommended applying additional tariffs of up to 100 percent on $2.4 billion worth of French products, including cheese and sparkling wine, after determining the tax discriminated against U.S. companies and contravened international tax norms. The USTR is also considering opening similar probes into digital taxes that Austria, Italy, and Turkey are pursuing.
Le Maire said he had sent a letter to U.S. Trade Representative Robert Lighthizer on the subject and planned to speak to Treasury Secretary Steven Mnuchin as well.
While France takes the threat of sanctions seriously and will retaliate if necessary, trade wars are in no one’s interest, according to Le Maire, who called on the United States to exercise wisdom and reason. He also urged the United States to continue negotiations through the OECD to find agreement by the end of 2020 on a multilateral approach to update international corporate tax rules for the digital age.
Le Maire said he would meet with EU Trade Commissioner Phil Hogan January 7 to explore potential trade actions if the United States decides to impose tariffs on French goods.
European Commission spokesman Daniel Rosario confirmed the meeting during a January 6 press conference in Brussels, saying the commission has been closely following developments in the USTR’s investigation.
The commission has said the EU would react as a group and is coordinating with the French authorities on next steps, according to Rosario. The commission is also aware of Le Maire's letter to Lighthizer, he added.
Hogan will meet with Lighthizer in the coming week to discuss the matter further, according to Rosario. In the meantime, the commission is still committed to working on global tax reform, and progress thus far within the OECD framework has been encouraging, Rosario added.
Despite a recent U.S. twist in that work, countries continue the political wrangling needed for agreement on a way to address tax challenges linked to the digitalization of the economy. A potential two-pillar solution to those problems could lead to fundamental changes to the international corporation tax architecture, with revised profit allocation and nexus rules under pillar 1 and global minimum taxation under pillar 2.
The inclusive framework, a group of nearly 140 countries responsible for finding consensus on that solution, is expected to make more progress during their next meeting at the end of January.
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Le Maire’s warnings come a day before the USTR’s January 7 public hearing about proposed actions against the DST, including its tariff recommendations. The extensive witness list includes representatives from such multinationals as Le Creuset of America, Zwilling J.A. Henckels and Staub, Wine.com, the National Milk Producers Federation, the Cheese Importers Association of America, the National Association of Wine Retailers, and a bevy of wine and beverage companies and importers.
Neither Treasury nor the USTR responded to Tax Notes’ requests for comment by press time.