That approval of what amounts to a 3 percent tax on the digital revenues of large, U.S.-based technology companies was expected, as I explained in March. Somewhat less expected, however, was the fact that France’s legislature voted to approve the new tax less than 24 hours after U.S. Trade Representative Lighthizer released a statement indicating that his office is launching an investigation of France’s digital services tax under Section 301 of the Trade Act of 1974 – which gives the USTR “broad authority” to examine “and respond to a foreign country’s unfair trade practices.”
“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies,” Lighthizer noted in a prepared statement. “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.”
This back-and-forth relates to a pivotal issue that we’ve discussed before: the extent to which new digital taxation policies are the result of unilateral actions or multilateral actions. Lighthizer’s statement concludes by noting that the U.S. “will continue its efforts with other countries at the OECD to reach a multilateral agreement to address the challenges to the international tax system posed by an increasingly digitized global economy.”
From a taxpayer perspective, a multilateral approach to creating, implementing and enforcing digital tax policies has many advantages over a unilateral approach. We’re currently examining the implications of these two policymaking approaches on companies and their tax functions, and we’ll share with you what we learn.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.