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US Senate Finance Committee Seeks Response To French Digital Tax

Friday, July 5, 2019

The leaders of the United States Committee on Finance have written Treasury Secretary Steven Mnuchin urging him to use "all tools available" to counter France's digital services tax, which they argue will unfairly discriminate against US companies.

"We write to encourage you to intensify your efforts to convince the French Government that it would be unwise and short-sighted to implement a digital services tax (DST) while France, the United States, and other countries are expeditiously working to reach a consensus at the Organisation for Economic Co-operation and Development (OECD) on the tax challenges arising from the digitalization of the economy," wrote Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Democrat Ron Wyden (D-OR).

"It is our understanding that notwithstanding the progress being made at the OECD, the French General Assembly and Senate have both passed versions of a DST that could hinder such progress and create a new transatlantic trade barrier. A gathering of members of the French General Assembly and Senate is expected as soon as this week at which time an agreement could be reached to resolve the differences in each chamber's DST provision. The DST would unfairly target certain US-based multinational companies, apply retroactively to the beginning of this year, and potentially lead to significant double taxation. Time is, therefore, of the essence," they wrote.

"In recognition of the gravity of this situation, we ask that you consider all available tools under US law to address such targeted, discriminatory taxation. As you know, the Internal Revenue Code provides tools to address such actions. Under Section 891, a double rate of US tax could be imposed on citizens and corporations of foreign countries engaging in discriminatory taxation of Americans."

"We continue to support your active participation in the current OECD negotiations. We encourage you to take all the steps necessary to convince the French Government to abandon its unilateral DST provision, and instead direct its efforts towards reaching a consensus at the OECD."

Under the French DST, a three percent tax rate will be imposed on digital companies providing advertising services, selling user data for advertising purposes, or performing intermediation services. Companies with global revenues of EUR750m (USD854m) or more and French sales of at least EUR25m will be required to pay the tax.

The tax will apply to turnover realized in France since January 1, 2019, and is expected to affect around 30 companies supplying digital services in France.