Tech Reps Blast French Digital Tax as Radical Discrimination Against US Industry
France’s digital service tax (DST) is a radical departure from international norm, discriminates against U.S. companies and undermines efforts to reach global, multilateral consensus on the digital economy, tech companies and trade groups told U.S. officials Monday (see 1908140056). Witnesses from Facebook, Google, Amazon, the Information Technology and Innovation Foundation, the Computer & Communications Industry Association and the Information Technology Industry Council testified before the Office of the U.S. Trade Representative and officials from various federal agencies. Representatives from the departments of Commerce, State, Agriculture, Homeland Security and others questioned tech witnesses as part of the USTR’s Section 301 investigation of France’s DST.
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Approved this year and retroactively applied to January, the DST imposes a 3 percent tax on annual revenue generated by large tech companies serving French consumers. It covers digital platforms -- the vast majority of which are American -- with annual revenue of at least 750 million euros ($832 million) globally and 25 million euros ($27.7 million) in France. Industry officials referred to the DST throughout the hearing as the GAFA (Google, Apple, Facebook and Amazon) tax.
Industry officials repeatedly sought a multilateral, international tax agreement from the Organisation for Economic Co-operation and Development to override France or any other unilateral efforts to tax the industry. CCIA supports an “aggressive” response from the administration, said Chief Operating Officer Matt Schruers. The Tax Foundation Global Projects Director Daniel Bunn warned the administration against taking drastic retaliatory action against the DST, which he said essentially is a tariff. President Donald Trump’s ongoing trade wars will lead to lower wages and fewer jobs for Americans in the long-term, Bunn said.
The DST’s high revenue threshold is discriminatory against American tech companies, said Amazon International Tax and Policy Planning Director Peter Hiltz. Sweden, Ireland and other regional economies favor a consensus approach from the OECD, said Google Trade Policy Counsel Nicholas Bramble. But Spain, the U.K. and others are considering unilateral approaches similar to France’s, he said. If unchallenged, the DST provides political cover for about a dozen other countries weighing similar proposals, said Baker & McKenzie partner Gary Sprague, speaking on behalf of Facebook, Google, Microsoft, Twitter and others. This is a dangerous trend in international law, said ITIF Senior Fellow Joe Kennedy.
Facebook’s average effective tax rate is higher than 26 percent globally, said Global Tax Policy Head Alan Lee. It pays a significant portion of its taxes in the U.S., just like French companies pay the majority of their taxes to France, he said. France’s model, if the trend continues, could expose companies to multiple countries claiming tax value from the same transaction, amounting to double taxation, Hiltz said.
“Self-interested” tax principles will undermine any confidence in international frameworks, said National Foreign Trade Council President Rufus Yerxa: “If other countries follow, we're in a new era of tax policy.” Since the DST targets gross revenue and not profit, it threatens companies that aren't profitable and are borrowing to grow, Lee said.
The U.S. can use its negotiating position at OECD to remove DSTs from future tax agreements, said the Tax Foundation's Bunn. France’s DST contradicts French obligations to the World Trade Organization and the EU, said CCIA's Schruers. One question is whether the DST is an illegal form of state aid under EU law that favors domestic companies over foreign competitors.
Explicit taxes on revenue are exceedingly rare, said ITIF's Kennedy. The DST is similar to a value-added tax, but VATs are applied across the board and don’t draw arbitrary distinctions based on company size, he said.