US And France Reach A Compromise Over Digital Services Tax

; posted on
August 27th, 2019

During a joint press conference with U.S. President Donald Trump, French President Emmanuel Macron announced that a compromise has been reached regarding the French Digital Services Tax (DST), which has been strongly opposed by the U.S. as unfairly targeting U.S. companies.

French tax on tech giants

The French government argued that multinational firms such as Alphabet, Apple, Facebook, Amazon and Microsoft, which are headquartered outside the country, pay little or no tax on their sales in France. The digital sales tax was approved by the French senate in July 2019, a week after it was passed by the lower house, the National Assembly.

Any digital company with revenue of more than €750m ($850m; £670m) - of which at least €25m is generated in France - will now be subject to the tax, which will be retroactively applied from early 2019 and is expected to raise about €400m in revenue this year.

France has long argued that taxes should be based on digital, not just physical presence. France's new 3% tax will be based on sales made in the country, rather than on profits.

In response to such policy, the United States has repeatedly expressed its opposition to the DST and others like it. The Office of the U.S. Trade Representative announced that it would open an investigation under section 301 of the Trade Act of 1974, which could lead to new tariffs or other punitive measures against France. One of the measures was US planning to impose tariffs on French wine imports in retaliation for the DST. During a section 301 investigation hearing on mid od August, representatives from Amazon, Google, Facebook, and other companies testified and unified against the digital tax. They threatened that in case the DST is applied, the cost will be shifted to customers which may lead to the increasing price of the products/services sold.

It is pertinent to note that US also used the same approach to threatened the Latin American Countries that are planning to impose DST on US tech companies. 

DST - The compromise on French tax on tech giants

After the exhausted debate on the digital tax, recently, the United States and France have agreed in principle that companies would be required to pay the French DST in 2019 and 2020. If a global approach to tax the digital economy is applied in 2021, then France would calculate what companies would owe under that solution. If those companies owe less than the DST they already paid in 2019 and 2020, then France would reimburse the difference. The repayment would effectively act as a tax credit. However. there are no exact details or text available yet about the agreement.

The OECD has for a few years been working on a way to properly tax tech companies with a standardized set of rules. According to recent announcements, this new framework could be released in 2020. In this regard, once the global consensus has been reached, the France will perform the reconciliation calculation.

Source: Techcrunch

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