US Trade Representative (USTR) Robert Lighthizer has begun an investigation under Section 301 of the Trade Act of 1974 of France’s digital services tax (DST). The proposed DST bill would impose a 3% tax on total annual revenues generated by some companies from providing certain digital services to, or aimed at, French users. 

The tax applies only to companies with total annual revenues from the covered services of at least EUR 750m globally and EUR 25m  in France.  The services covered are ones where US firms are global leaders. The USTR believes the structure of the proposed new tax as well as statements by officials suggest that France is unfairly targeting the tax at certain US-based technology companies.

“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow [11 July 2019] unfairly targets American companies,” said Lighthizer.  “The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”

Section 301 and related provisions of the Trade Act (codified as amended in 19 U.S.C. §§ 2411-2417) give the USTR broad authority to investigate and respond to a foreign country’s unfair trade practices.

Reaction has come from the European Parliament, interpretingthe move as a step that could lead ultimately to the imposition of tariffs on French companies by the US.  MEP Molly Scott Cato, Member of the Committee on Financial and Monetary Affairs, said: "We support France' attempts to make tech companies pay their taxes where they operate and generate revenue. This decision by the US is putting at risk the OECD negotiations for modernising tax rules for the digital economy, and to make digital companies pay their fair share in taxes.

"The current situation is a result of failure at the EU-level to agree on a digital services tax and it shows that the unanimity rule is undermining the European position on the global level. It's a weakness of EU decision-making that only four Member States managed to block EU action on a tech tax."