December 3, 2019

U.S. Trade Representative Announces Results of Section 301 Investigation of French Digital Services Tax

By Douglas J. Heffner and Richard P. Ferrin

The U.S. Trade Representative (USTR) has completed the initial stage of a Section 301 investigation regarding the Digital Services Tax (DST) passed in July 2019 by the French Parliament, which imposes a three (3%) percent additional tax on gross revenues derived from advertising targeted toward French users based on user data and certain digital services provided to French users. The DST is retroactive to January 1, 2019, and affects the full value of French receipts for companies with global digital services revenues of € 750 million and French digital services revenues of € 25 million.

USTR has released a report containing the full findings of the investigation, including the following conclusions:

  • The DST discriminates against U.S. companies;
  • The DST is inconsistent with international tax principles due to its retroactivity, extraterritorial application, and emphasis on revenue rather than income; and
  • The DST is intended to penalize specific U.S. companies such as Google, Apple, Facebook, and Amazon.

USTR has proposed duties of up to 100 percent on certain French imports covering 63 tariff subheadings with an approximate trade value of $2.4 billion.

The affected subheadings include some of the following products:

  • Yogurt, butter, whey protein, and milk-based fats and oils
  • Numerous types of cheeses
  • Sparkling wine
  • Cosmetics and soap
  • Handbags
  • Enameled cast iron table and kitchenware

The interagency Section 301 Committee is seeking public comments on the proposed duties and will hold a public hearing. The Committee has set the following deadlines:

  • December 30, 2019: Due date for submission of requests to appear at the public hearing and written testimony.
  • January 6, 2020: Due date for submission of written comments.
  • January 7, 2020: The 301 Committee will convene a public hearing at 9:30 a.m. in the Main Hearing Room of the U.S. International Trade Commission, 500 E St. SW, Washington, DC 20436.
  • January 14, 2020: Due date for submission of post-hearing rebuttal comments.

With regard to the proposed duties, USTR invites comments with respect to any aspect of the proposed action, including:

  • The specific products to be subject to increased duties, including whether products listed in the Annex should be retained or removed, or whether products not currently on the list should be added;
  • The level of the increase, if any, in the rate of duty;
  • The level of the burden or restriction on the U.S. economy resulting from the DST; and
  • The appropriate aggregate level of trade to be covered by additional duties.

With regard to retaliatory measures against French services, USTR seeks comments on issues such as:

  • Which services would be covered by a fee or restriction;
  • If a fee is imposed, the rate (flat or percentage) of the fee, and the basis upon which any fee would be applied;
  • If a restriction is imposed, the form of such restriction; and
  • Whether imposing fees or restrictions on services of France would be practicable or effective to obtain the elimination of France’s acts, policies, and practices.

USTR also indicated that it is considering the possibility of opening additional Section 301 investigations into forthcoming digital service tax programs in Austria, Italy, and Turkey.

If you would like to submit written comments to the Section 301 Committee or request to appear at the hearing, please contact Douglas J. Heffner, Richard P. Ferrin, or any other member of the Customs and International Trade Team

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