US trade wars have intensified with France now in the crosshairs of the Trump administration for its digital services tax.
The Trump administration trade wars have escalated with a proposal of 100pc tariffs on French goods in retaliation to France’s digital services tax, which has been deemed unfair to US tech companies.
An investigation from the US Trade Representative (USTR) has concluded that France’s digital services tax discriminates against US companies and is “unusually burdensome”.
“USTR’s decision today sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on US companies,” said US trade representative Robert Lighthizer.
“The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies, whether through digital services taxes or other efforts that target leading US digital services companies.”
What is a digital services tax?
The USTR inquiry was ordered this summer after France approved a 3pc tax on large tech companies’ total sales in France. This tax applies to tech companies with global sales of more than €750m and that make more than €25m per year in France.
At the time, French finance minister Bruno Le Maire said it would affect only 30 companies, the majority of which were US-based firms such as Google, Apple, Amazon and Facebook.
The digital services tax is an effort by the French government to collect taxes from global tech companies that pay tax on revenue in the countries where their headquarters are based instead of where the sales are generated. This can benefit a company when its EMEA headquarters is based in low-tax jurisdictions such as Ireland.
The European Commission has previously outlined proposals for a similar EU-wide digital tax, but this would need unanimous agreement from member states, and Ireland, Sweden and Denmark have opposed the suggestion.
New rules could also be introduced on a multilateral basis throughout the OECD but progress on this decision has been slow.
US president Donald Trump had threatened there would be retaliation for the French tax when it was enacted in July.
The tariffs proposed by the US on Monday (2 December) target up to $2.4bn of French goods, including sparkling wines, handbags, porcelain, soap, butter, cheese and yoghurt. “Fees or restrictions” on French services are also being considered.
Those who may be affected by the proposed tariffs – both producers and consumers – can submit public comments for review up to 14 January. The tariffs will not be imposed before this time.
The move was reportedly welcomed by the US tech sector, though it hopes to avoid this outcome, according to comments from Jennifer McCloskey, vice-president for policy at the Information Technology Industry Council, published in the Financial Times.
More trade tariffs threatened
This could just be the first of punitive US tariffs to hit products in Europe with the USTR exploring similar digital services tax investigations in Austria, Italy and Turkey.
According to the Financial Times, the US trade representative’s office could also target goods from the UK, Spain and Germany in response to subsidies to aircraft maker Airbus that have been deemed illegal by the World Trade Organization.
The French goods proposal came after an earlier announcement that the US president intends to restore tariffs on imports of steel and aluminium from Argentina and Brazil. Announced on Twitter by Trump, he accused Brazil and Argentina of “presiding over a massive devaluation of their currencies, which is not good for our farmers”.
“The Federal Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies,” he added.
Additionally, the US-China trade war continues with 15 December set as a deadline to reach an agreement before the US imposes 15pc levies on a further $156bn of Chinese goods.