The U.S. will investigate a French plan to impose taxes on technology companies, a move that has been a prelude to new U.S. tariffs under the Trump administration.
U.S. Trade Representative Robert Lighthizer will have as long as a year to examine whether the plan would hurt U.S. technology firms, and suggest remedies. The so-called 301 investigation is the same tool President Donald Trump used to impose tariffs on Chinese goods because of the country’s alleged theft of intellectual property.
“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies,” Lighthizer said in a statement announcing the action on Wednesday. “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.”
A French finance ministry official said that taxation is a sovereign issue and that the government’s plan is in line with international agreements. The U.S. shouldn’t use trade instruments to attack the sovereignty of another state, the official added.
The U.S. has lobbied aggressively to stop European countries from taxing the revenue of American tech companies like Facebook Inc. and Alphabet Inc.’s Google, and Lighthizer has sought to convince U.S. lawmakers that it’s serious enough to merit U.S. action.
“I think it’s something the United States has got to take strong action on,” Lighthizer told the House Ways and Means committee on June 19.
France’s proposed 3% levy would hit global tech companies with at least 750 million euros ($845 million) in worldwide revenue and digital sales totaling 25 million euros in France. The country’s National Assembly adopted the measure last week and the French Senate is due to vote on it Thursday. Other European countries have started to pursue their own digital tax plans after a European Union-wide effort stalled earlier this year.
Finance Minister Bruno Le Maire has said France isn’t the only country advancing a tax on digital companies and that using the threat of “blackmail” to stop them is pointless.
“I invite my American friends to work with us at the OECD for a fair digital tax,” Le Maire told French television station LCI in March. The Organization for Economic Cooperation and Development is working on a global solution on taxation for digital companies by 2020.
“The United States will continue its efforts with other countries at the OECD to reach a multilateral agreement to address the challenges to the international tax system posed by an increasingly digitized global economy,” the USTR said in its statement Wednesday.
A spokesman for the French Finance Ministry declined to comment earlier Wednesday, after Bloomberg first reported Trump’s decision to open the investigation.
The U.S. can levy tariffs specifically on products from France even though it is a member of the European Union, said Douglas Heffner, a international trade litigator at law firm Drinker Biddle & Reath. Under Section 301 of the Trade Act of 1974, the president has authority to impose tariffs or take other restrictive measures if it’s determined that a foreign country’s trading rules are damaging to U.S. businesses.
“The U.S. can be very creative,” Heffner said. “They don’t have to just go after digital products. They can go after products where they have leverage.”
Senators Chuck Grassley and Ron Wyden, the top Republican and Democrat on the Finance Committee, applauded the decision. “The United States would not need to pursue this path if other countries would abandon these unilateral actions and focus their energies on the multilateral process that is underway at the Organisation for Economic Cooperation and Development,” they said in a statement.
In a letter to Treasury Secretary Steven Mnuchin last month, the Grassley and Wyden urged the U.S. to look at “all available tools under U.S. law to address such targeted and discriminatory taxation.” The lawmakers included a suggestion to use a section of the tax code that would double the rate of U.S. taxes on French citizens and companies in the U.S.
The U.S. investigation would threaten to further strain trans-Atlantic ties as the two sides prepare to negotiate a limited trade agreement on industrial goods. The talks for a deal have progressed slowly because the U.S. and EU are at odds over whether to include agriculture in any final agreement. France is the country most adamantly opposed to making any agriculture concessions. Trump’s threat to impose a tariff of as much as 25% on European car exports has cast a cloud over the negotiations as well.
Finance ministers and central bankers at a Group of Seven meeting in Chantilly, France next week will discuss international taxation and competition and the digital economy.
–With assistance from William Horobin.
©2019 Bloomberg L.P.