The Trump administration will probe whether France’s planned “digital services” tax is an unfair trade practice that targets U.S. tech giants, a warning shot that could eventually result in tariffs or other retaliatory measures.
“The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce,” U.S. Trade Representative Robert Lighthizer said in a statement Wednesday.
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The dispute has been simmering for months as France and other countries contemplate taxes on services offered by Google, Facebook, Amazon and other companies.
“The services covered are ones where U.S. firms are global leaders,” the USTR’s office said. “The structure of the proposed new tax as well as statements by officials suggest that France is unfairly targeting the tax at certain U.S.-based technology companies.
French senators are set to vote Thursday on the tax, which would hit tech firms’ French revenues with a 3 percent tax if their worldwide revenue exceeds 750 million euros, roughly $840 million, or 25 million euros in France, about $28 million.
Lighthizer had threatened action last month against France if it proceeded with the tax.
The top Republicans and Democrats on the two tax-writing committees in Congress praised the administration’s move.
“The United States would not need to pursue this path if other countries would abandon these unilateral actions and focus their energies on the multilateral process that is underway” by the Organization for Economic Cooperation and Development, Senate Finance Chairman Chuck Grassley (R-Iowa) and ranking member Ron Wyden (D-Ore.) said in a joint statement.
The USTR is examining the tax under Section 301 of the U.S. Trade Act of 1974, which gives the administration broad discretion to impose retaliatory tariffs in response to foreign trade practices that impede U.S. exports, though the authority also offers other avenues beyond duties.
France would likely challenge any duties imposed by the U.S. as an illegal trade move, arguing the proper course would be to challenge the tax at the World Trade Organization. Instead of imposing duties, the U.S. could use its Section 301 investigation to launch its own WTO challenge.
The lower French parliament chamber, the National Assembly, has already approved the tax. French officials previously tried to get the tax adopted across the European Union but failed to garner enough agreement, so they’ve taken their own steps instead.
Tech industry officials and other business associations have warned that the tax threatens to sap innovation and welcomed the administration’s move.
“The internet industry is a great American export, supporting millions of jobs and businesses of all sizes,” the Internet Association, a trade group, said. “Global tax rules should be updated for the digital age — and there is a process to do so underway at the OECD — but discriminatory taxes against U.S. firms are not the right approach.”
France isn’t the only country that’s considering or advancing taxes on digital services. Other European nations are too, including the U.K. and Hungary, as are some in South America like Chile and Mexico.
Amazon said in a statement that the administration’s move should signal “to all of America’s trading partners that the US government will not acquiesce to tax and trade policies that discriminate against American businesses.”
The OECD is spearheading an effort involving more than 100 countries to develop a multilateral agreement in the next year, which U.S. officials and companies have supported.
Doug Palmer and Cristiano Lima contributed to this report.