US threatens 100% tariffs on US$2.4 billion of French goods over digital tax

The French products affected could include champagne, handbags and cheese.
The French products affected could include champagne, handbags and cheese.PHOTO: EPA-EFE

WASHINGTON (AFP) - The United States on Monday (Dec 2) threatened to impose tariffs of up to 100 per cent on US$2.4 billion (S$3.3 billion) in French goods in retaliation for a digital services tax it says is discriminatory.

French sparkling wine, yogurt and Roquefort cheese are on the list of goods that could be targeted as soon as mid-January after a report from the US Trade Representative’s office found the tax penalises American tech companies such as Google, Apple, Facebook and Amazon.

The decision "sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on US companies," US Trade Representative Robert Lighthizer said in a statement.

Mr Lighthizer also warned that Washington was considering widening the investigation to look into similar taxes in Austria, Italy, and Turkey.

"The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies, whether through digital services taxes or other efforts that target leading US digital services companies."

The announcement comes hours before US President Donald Trump is due to meet his French counterpart Emmanuel Macron on the sidelines of the Nato summit in London on Tuesday.

The French tax, enacted earlier this year, imposes a three per cent levy on the revenues earned by technology firms in France, which often come from online advertising and other digital services.

The tax affects companies with least 750 million euros (S$1.13 billion) in annual global revenue on their digital activities.

The French tax targets revenue instead of profits, which are often reported by tech giants in low-tax jurisdictions like Ireland in a practice that has enraged governments.

The USTR report "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."

After the tax was enacted, Mr Trump in July vowed "substantial" retaliation for the French measure.

USTR has scheduled public hearings on the proposal to imposes "duties of up to 100 per cent on certain French products," and the possibility of "imposing fees or restrictions on French services."

The last date to submit comments on the proposed actions is January 14, and "USTR expects to proceed expeditiously thereafter."

The list of French products subject to potential duties includes cosmetics, porcelain, soap, handbags, butter, and several kinds of cheeses, including Roquefort, Edam and Gruyere.

However, despite Mr Trump’s repeated threats to retaliate against French wines, only sparkling wine made the tariff list.

Efforts to find a global solution to the dispute over digital taxes have so far not been successful.

Last month, G-20 ministers meeting in Washington opened talks on an international system to tax global tech giants that the Organisation for Economic Cooperation and Development hopes would take effect by June.

Public outrage has grown over the practice of profit shifting, which critics say deprives governments of their fair share of tax revenue.