US threatens 100% tariffs on French Champagne over digital tax

The US Trade Representative has completed the first segment of its investigation under section 301 of the Trade Act of 1974 and concluded that France’s Digital Services Tax (DST) discriminates against US companies, is inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected US companies. 

Specifically, USTR’s investigation found that the French DST discriminates against US digital companies, such as Google, Apple, Facebook, and Amazon. 

In addition, the French DST is inconsistent with prevailing tax principles on account of its retroactivity, its application to revenue rather than income, its extraterritorial application, and its purpose of penalizing particular US technology companies, says a report available on USTR’s website.

“Indeed, USTR is exploring whether to open Section 301 investigations into the digital services taxes of Austria, Italy, and Turkey. The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets U.S. companies, whether through digital services taxes or other efforts that target leading U.S. digital services companies,”  Ambassador Robert Lighthizer said.

The U.S. trade agency said it would collect public comments through 14 January on its proposed tariff list as well as the option of imposing fees or restrictions on French services, with a public hearing scheduled for 7 January.

While the USTR did not specify an effective date for the proposed 100 per cent duties, the tariff list specifically targets some products that were spared from 25 per cent tariffs imposed by the United States over disputed European Union aircraft subsidies, including sparkling wines, handbags and make-up preparations - products that would hit French luxury goods giant LVMH and cosmetics maker L’Oreal hard.

Gruyere cheese, also spared from the USTR aircraft tariffs levied in October, featured prominently in the list of French products targeted for 100% duties, along with numerous other cheeses.

The findings won favor from U.S. lawmakers and US tech industry groups, who have long argued that the tax unfairly targets US firms.

Spokespeople for the French embassy and the European Union delegation in Washington could not immediately be reached for comment.

But prior to the release of the USTR’s report, a French official said that France would dispute the trade agency’s findings, repeating Paris’ contention that the digital tax is not aimed specifically at U.S. technology companies.

“We will not give up on taxation” of digital firms, the official said.

France’s 3 per cent levy applies to revenue from digital services earned by firms with more than 25 million euros ($27.86 million) in French revenue and 750 million euros (644 million pounds) worldwide.

The USTR’s report and proposed tariff list follow months of negotiations between French finance minister Bruno Le Maire and US Treasury Secretary Steven Mnuchin over a global overhaul of digital tax rules. The two struck a compromise in August at a G7 summit in France that would refund US firms the difference between the French tax and a new mechanism being drawn up through the Organization for Economic Cooperation and Development.

But Trump never formally endorsed that deal and declined to say whether his French tariff threat was off the table.