Tech Backs US Pressure on France Over Digital Tax, in Filings for USTR
About 10 comments from associations and companies that would be affected by France's digital services tax backed U.S. concern, many saying there's a discriminatory DST intent against American companies. Some told the Office of the U.S. Trade Representative in advance testimony that U.S. tariffs on French imports aren't the way to fix the problem. Sixteen filings in USTR-2019-0009 were posted through this week. A USTR hearing is set for Monday (see 1907150037).
The tax is retroactive to Jan. 1 and applies to large tech companies, with a carve-out for one large French online advertising firm. It's a 3 percent tax on revenue derived in France. USTR began an investigation last month (see 1907110033). France's embassy in Washington didn't provide a new comment Wednesday.
The Information Technology Industry Council said the Section 301 statute of the 1974 Trade Act undergirding the probe applies to unreasonable policy and discriminatory acts. "The French digital services tax appears to meet both of these standards," ITI wrote. "The tax has been widely referred to as the 'GAFA' tax, which stands for Google, Apple, Facebook and Amazon." While the tech group backs U.S. government "efforts to investigate these complex trade issues," it seeks the 301 investigation "in a spirit of international cooperation and without using tariffs as a remedy."
Even if there were applications to French firms, the U.S. Chamber of Commerce wrote, "the French DST allows VAT to be subtracted from taxable revenue in calculating the base tax rate. Of course, the United States is one of the very few major world economies that does not impose VAT, so this element of the DST has the effect of expanding the tax base for U.S. firms relative to their European competitors. This approach heightens the impact of the discrimination against U.S. firms."
CompTIA noted that France initially said the DST would apply only until 2021, when it expects the Organisation of Economic Cooperation and Development to have arrived at a solution on taxing services across borders. "The final version that was signed into law removed this stipulation," the group added. The Computer & Communications Industry Association said that "France’s action warrants a substantial, proportionate response from the United States."
"Google’s overall global tax rate has been above 23 percent over the past 10 years, in line with the 23.7 percent average statutory rate across the member countries of the OECD," the company wrote. "Most of these taxes are due in the U.S., where most of our products and services are developed." He acknowledged most of that tax was paid domestically, "just as German, British, French, and Japanese firms pay the majority of their corporate taxes in their home markets."
Baker & McKenzie, representing Airbnb, Amazon, Expedia, Facebook, Google, Microsoft, Salesforce, Stripe and Twitter, said the retroactivity is extraordinary. That's given "the systems changes needed for the intensive user location tracking and data storage that compliance and audit-readiness requires," the law firm said. Some of those companies also filed individually: Amazon and Facebook.
A 26-page Information Technology and Innovation Foundation paper in May took apart the logic behind the tax. Written testimony from ITIF Senior Fellow Joseph Kennedy noted "distribution of taxable profits between countries normally reflects where value is created. The sale of a product usually does not create additional value."