Digitalized economy consistent global taxation is the elevated principle to protect above any string of back & forth retaliations

  • US initiated the investigation of the passed France’s Digital Services Tax on July 2019, under Section 301 of the Trade Act and determined in December that French DST is discriminatory restricting U.S. commerce as “the services covered are ones where U.S. firms are global leaders”.  It also said it is inconsistent with prevailing international tax policy principles.
  • The US office confirmed also on January 17th that it reserves the right to take retaliatory measure if the Czech Republic imposes a 7% Digital Services Tax.
  • In respect to France the Trade Office proposed additional customs duties of up to 100% on some iconic French products like cheese, Champagne, handbags, cosmetics and others with an approximate trade value of $2.4 billion. 
  • The press quoted Amazon, Google and Facebook as endorsing the Administration’s tariffs plan in the case a negotiated solution could not be reached over the French DST. 
  • Previous US retaliatory 25% duties on wine are in discussion in a separate dispute over supposed European government aid to Airbus, which would now be increased to 100 percent.
  • French Economy Minister mentioned in early January 2020 that he and U.S. Treasury Secretary were doubling their efforts to try and reach a compromise on digital taxation at the OECD,  giving themselves time until next meeting in Davos ending January: “We want to try all options to reach an agreement at the OECD in the next 15 days,” Le Maire said.
  • EU Commissioner for Trade increased the temperature of the debate when confirmed that they back Paris in this dispute:

“The European Commission will stand together with France and all of the member states who wish to have the sovereign right to impose digital taxation on companies in a fair way. We will look at all possibilities if any tariffs and measures are imposed by the US”.

  • Days after, Mr Le Marie stated outright that the recent U.S. proposal that the future international tax reform could be optional for companies is a “non-starter” and is “no longer on the table”, and that it was up to U.S. authorities to make a move on the French digital tax…seemed clear enough.
  • Nonetheless, the Presidents of the 2 countries talked on January 20th , publishing positive tone Twits just after….followed by an announcement from France yesterday the 21st of not a withdrawal of the tax but an effective suspension of the cash collection until the OECD resolves this topic at the end of 2020.  

If the OECD reaches an agreement by the end of 2020, France’s unilateral tax will not be applied.

To note that payments were already collected in November for 2019 on revenues from July.

  • Even when the US Trade Office wants to send a very strong signal to the world with the French DST case,  and it is having some reach as we have just seen yesterday, the reality is that other countries like Spain, Italy,  Austria, Turkey and the UK have either passed or firmly stated again this week their willingness in doing so despite those type of warnings. 

Some of these countries have very tight Public Budgets to deliver on.

A good number of LATAM, African and Asian countries are heading to the same direction.

France has just granted time to align with OECD calendar but remains firm on the intention and the EU Commission reiterated yesterday the support to OECD effort but intention to reactivate the DST Directive if consensus is not reached.

This is the never-ending story of the last 12 months but it is every day more obvious that global consistent solution is required now or not only the tax table, but the international commerce trade balance will suffer on a very deep basis.   

A balance between the currently overarching political aspect and the soundness and practicality of the technical solution will need to be reached, and that is not going to be easy.  But leveling the playing field is needed as digitalized business models will be pervasive in many industries.

Both Microsoft and Apple top executives confirmed yesterday that they back the push for common global solution to pay appropriate taxes where they do business.    

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