Update: French Digital Services Tax and Possible 301 Duties
Nov. 13, 2020
By: Lois E. Wetzel
In June 2020, we wrote on the status of the Digital Services Tax (DST) in France, which was passed in July 2019 but has yet to be administered. A DST is a tax on selected gross revenue streams of large digital companies that have domestic and global revenues above a certain threshold. The French DST is set to be levied against certain services at a rate of 3 percent and will apply to all companies with worldwide revenues from taxable digital services exceeding €750 million per year and more than €25 million of the annual revenue is generated in France.
The French DST generated considerable controversy in the U.S. and in response, the USTR opened a Section 301 investigation into the discriminatory nature of the tax measure. In December 2019, the USTR released an affirmative finding of discrimination and issued a list of $2.4 billion worth of French goods that would be subject to an additional 25% tariff under Section 301. Last we reported, France sought to avoid the 301 sanctions by agreeing to suspend collection of the DST until December 2020 while negotiations for a multilateral solution to taxation of multinational companies continued in the Organization for Economic Cooperation and Development (OECD). In the event that a multilateral tax scheme manifested in the OECD that could apply to 2020, France agreed to repeal their DST.
As a result of COVID19, negotiations regarding a multilateral tax scheme have slowed and an international agreement will not be reached by the end of the year. Indeed, in mid-October 2020 the G20 nations announced that a decision on new tax rules for the digital economy had been postponed until mid-2021. This means that the French will likely soon be administering their own DST. According to recent reports, French Finance Minister Bruno Le Maire confirmed that France will be levying a DST for 2020. Le Maire has also commented that there will be no further postponements to digital the tax payments, meaning that DST payments that were set to be paid in April and October of this year had they not been stalled by the stalemate, will be collectable as a single lump sum this December.
The USTR has yet to comment on France’s plan to collect DST payments in so far as it concerns the retaliatory imposition of Section 301 duties. Nor have there been updates in the USTR’s Section 301 investigations against other countries that are following France’s lead in issuing a DST against certain companies meeting revenue thresholds. If France does indeed collect come December, importers of certain French goods should expect that USTR will resume plans to impose the retaliatory 25% duty on those goods.
If you have any questions about navigating Section 301 duties or other trade related questions, please reach out to an attorney at Barnes, Richardson & Colburn.