Vulcan Insight

Digital tax dispute rumbles on

10 January 2020

France and the United States have agreed to “double their efforts in the coming days to try and reach a compromise on digital taxation within the OECD“. The agreement comes after a phone call on Monday, January 6 between French Economy Minister Bruno Le Maire and US Treasury Secretary Steven Mnuchin. Mr. Le Maire is due to meet with Mr. Mnuchin at the World Economic Forum meeting in Davos, Switzerland later this month.

In light of France’s 3% digital services tax on firms with more 750 million euros in global revenue, and 25 million euros in revenue in France, the United States Trade Representative, Robert Lighthizer has proposed retaliatory levies on French luxury goods of up to 100%. This levy could result in substantial American tariffs on French cheese, Champagne, handbags and other goods.

Mr Le Maire has called the Trump Administration’s plans to tariff French goods “unfriendly, inappropriate and illegitimate”. Phil Hogan, the EU’s Trade Commissioner, responded to the US move by saying “the European Commission will stand together with France and all of the member states who wish to have the sovereign right to impose digital taxation on companies in a fair way”.

France aim to get rid of the national digital services act once a minimum taxation level is agreed at the OECD. However, negotiations at the OECD are continuing at a slow pace which is frustrating EU officials. EU Commissioner for the Economy, Paolo Gentiloni has also supported France by stating the bloc would be ready to revive its own plans — originally pushed by France but ultimately foiled by a few member states — for an EU-wide digital tax if the OECD talks failed.

Large technology companies support the process of dispute resolution and a solution from the OECD as opposed to increasing the risk of a transatlantic trade war, many of whom are already paying the French digital services tax.

Representatives of goods companies that would be affected by the US tariffs are strongly opposed to the proposal. Nate Herman of American Apparel & Footwear Association, has said that the company “just don’t agree with the U.S. government’s proposal to accomplish their goals by imposing taxes on handbags.”

Although France have been the first to create a national digital services act, approximately 15 countries worldwide plan to impose similar national digital taxes by June. Unless there is a viable solution proposed from the OECD, the US may have to deal with newly introduced national digital tax systems from the likes of Italy, the UK, and Austria very soon.