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United States Trade Representative finds the French Digital Services Tax burdensome and unfair to US companies

The United States Trade Representative (USTR) delivered its final report[1] on the French Digital Services Tax (DST), concluding that the tax “is inconsistent with prevailing principles of tax policy and unusually burdensome for affected U.S. companies,” thereby triggering possible tariffs under Section 301 of the Trade Act of 1974. Section 301 is a legal provision that gives the U.S. president broad authority to retaliate against trading partners; the U.S. has previously used Section 301 to justify tariffs against China, the European Union, Canada, Japan and Mexico.

The report signals the possibility of tariffs against key French imports to the U.S., such as wine and cheese, as well as similar Section 301 actions against other proposed digital service tax regimes in other countries. The DST was enacted into French law on July 24, 2019; is retroactive to January 1, 2019; and required payment as of November 2019. Covered entities (of which Google, Apple, Facebook and Amazon are the most prominent) face regulatory, administrative and operational burdens and costs regardless of what the U.S. decides to do.

If tariffs are indeed imposed —and investigations launched into other tax proposals — then the disruption will not be contained to digital services companies but will undoubtedly affect industries across the spectrum as new tariffs and duties are applied to a variety of goods and services.

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