The United States announced this week that it will launch an investigation under Section 301 of the Trade Act of 1974 into a proposed French digital services tax (DST) aimed at global technology companies.
“What the USTR is investigating is whether or not this so-called GAFA (Google, Apple, Facebook, Amazon) tax, which would be on 3% of the sales revenue that those companies earn in France would be discriminatory against U.S. companies,” said Raj Bhala, Brennesein Distinguished Professor of Law at the University of Kansas and a Senior Advisor at Dentons.
France is not limiting the tax to those from the United States only, the limit imposed on the tax is one based on sales numbers.
“To be subject to the tax, you have to be a company that has an annual worldwide sales revenue of at least 750 million Euro,” said Bhala. “Of that worldwide sales revenue, you have to have earned about 25 million Euro in digital sales in France.”
The French say there are conditions that would allow them to walk away from the tax, but a trade threat from the U.S. isn’t among them.
“These companies are very good at shifting their profit allocations around to different jurisdictions to minimize their tax liability,” Bhala said. “The French say, ‘We’re going to focus on sales revenues as being the taxable entity.'”
Once the OECD or the European Union come to a larger agreement that will close the loopholes the big technology companies have been using, the French have said they will be happy to defer to such an agreement. The investigation by the USTR, unless a deal is struck to end it, could last from several months to a year.