On December 2, 2019, the Office of the U.S. Trade Representative (USTR) issued a Section 301 Investigation Report on France’s Digital Services Tax (DST), concluding that France’s DST discriminates against U.S. companies, is inconsistent with prevailing principles of tax policy, and is unusually burdensome for affected U.S. companies. The USTR's proposed action in response to the DST includes additional ad valorem duties of up to 100 percent on certain products of France. The list of French products subject to potential duties includes 63 tariff subheadings with an approximate trade value of $2.4 billion. The USTR has invited public comment on these issues.
On March 6, 2019, the French government released a proposal for a 3 percent tax on revenues generated by some companies from certain digital services (the DST). The two houses of the French parliament passed DST bills on April 9 and May 21, 2019, and agreed on a final bill on July 4, 2019. On July 24, 2019, President Emmanuel Macron signed into law a 3 percent levy on gross revenues generated from "digital interface" and "targeted advertising" services provided "in France." The DST applies only to companies that generate €750 million globally and €25 million in France, and requires that covered companies calculate revenues attributable to France using formulas specified under the law. The services covered under the law are ones where U.S. firms are global leaders. The DST applies retroactively beginning January 1, 2019.
On July 10, 2019, the USTR initiated an investigation of the French DST pursuant to section 302(b)(1)(A) of the Trade Act of 1974, as amended (Trade Act). Section 301 of the Trade Act sets out three types of acts, policies or practices of a foreign country that are actionable: (i) trade agreement violations; (ii) acts, policies or practices that are unjustifiable (defined as those that are inconsistent with U.S. international legal rights) and burden or restrict U.S. commerce; and (iii) acts, policies or practices that are unreasonable or discriminatory and burden or restrict U.S. commerce. If the USTR determines that an act, policy or practice of a foreign country falls within any of the categories of actionable conduct, the USTR must determine what action, if any, to take. Authorized actions include "imposing duties, fees, or other import restrictions on the goods or services of the foreign country."
On December 2, 2019, the USTR issued a nearly 80-page Section 301 Investigation Report on France's Digital Services Tax (DST Report), concluding that "France's DST discriminates against U.S. companies and is inconsistent with prevailing principles of tax policy and unusually burdensome for affected U.S. companies." The DST Report explains that U.S. companies are the key targets of the DST. The DST Report notes that "[a] range of tools may be appropriate to address these serious matters, including intensive bilateral engagement, WTO dispute settlement, or 'imposing duties, fees, or other import restrictions on the goods or services of [France].'"
Immediately following the release of the DST Report, the USTR issued a Notice of Determination and Request for Comments Concerning Action Pursuant to Section 301: France's Digital Services Tax, proposing action in the form of additional ad valorem duties of up to 100 percent on products from France, including yogurt, cheese, handbags, sparkling wine, beauty products, soap and china. See USTR-2019-0009. The list of French products subject to potential duties includes 63 tariff subheadings with an approximate trade value of $2.4 billion.
The USTR has also indicated that it is exploring whether to open Section 301 investigations into the digital services taxes of Austria, Italy and Turkey.
Public notice and comment process:
The USTR is seeking comments on the proposed action, as well as on other options, including the imposition of fees or restrictions on services in France. The interagency Section 301 Committee will hold a public hearing in connection with the action to be taken under Section 301.
Key dates are as follows:
- December 30, 2019: Due date for submission of a request to appear at the public hearing and a summary of testimony
- January 6, 2020: Due date for written comments
- January 7, 2020: The Section 301 Committee will convene a public hearing in the main hearing room of the U.S. International Trade Commission, 500 E Street SW, Washington, D.C. 20436 beginning at 9:30 a.m.
- January 14, 2020: Due date for submission of post-hearing rebuttal comments
Moving forward, U.S. Trade Representative Robert Lighthizer has indicated that 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." The International Trade and National Security team at Reed Smith will continue to track the proposed tariff on French products, as well as any additional Section 301 investigations opened as a result of digital services taxes in other countries.