The French and US Governments have stepped back from introducing tariffs on each other’s products following a dispute on the operation of the French Government’s proposed Digital Services Tax (DST).
The French DST proposes to introduce at 3% revenue tax on firms with more 750 million euros in global revenue and 25 million euros in revenue in France. Activities in scope of the French tax include two categories of digital services— “digital interface” services and “targeted advertising” services.
An investigation under the US Trade Act of 1974 by the US Trade Representative (USTR) concluded that, based on the evidence collected by US officials, the French DST "is intended to, and by its structure and operation does, discriminate against U.S. digital companies". As a result of the investigation the US Government threatened retaliatory tariffs on French products.
The dispute between both sides threatened to kick off rounds of retaliatory tariffs, possibly bringing the EU into a trade dispute with the US over the French DST. However following negotiations between US and French politicians the French Government has agreed to suspend the implementation of their DST until the end of the year to find time for a deal at the OECD level.
This is a welcome climbdown from the prospect of a US-EU trade dispute that would have benefitted no one. The UK Government however should look to this case as it considers whether to implement its own DST.
In its current form it is very hard to see how a UK DST proposal would not be open to a similar challenge from the US. This risks an early trade dispute with the US at a time when the UK is trying to make progress in securing free trade agreements with key partners such as the US, Australia, New Zealand and Japan.
techUK has long called on governments around the world to work together through the OECD to support changes to global tax rules. The fair taxation of multinational businesses is one of the great challenges of the modern economy, with the current rules simply not fit for purpose. However the solution to this problem needs to be found at the multilateral level.
As one of the world’s largest and most successful digital tech sectors we want to see the UK project an image of an open and internationally facing economy and one that is a firm supporter of free trade. To fully project this image the UK should use the de-escalation over French DST as an opportunity to refocus efforts at the OECD level and take a leadership role in designing a sustainable multilateral solution fit for the realities of the 21st century global economy.