Just hours after France became the first major economy to implement a digital services tax (DST) on American companies, U.S. Trade Representative Robert Lighthizer announced that the United States would investigate the proposal. The main concern that Lighthizer expressed in a statement Wednesday is that the tax would unfairly target American companies such as Amazon, Facebook, and Google.
Lighthizer will be able to investigate for up to one year to determine if the tax is explicitly discriminating against and harming U.S. technology companies. This is authorized under Section 301 of the U.S. Trade Act, the same vehicle used by the Trump administration to impose tariffs on China.
The French DST is a 3% tax on the revenues of technology companies that earn at least 750 million Euros in worldwide revenue, of which at least 25 million is earned in France. The law was written in order to exempt smaller and French companies and only target the big American tech giants. The European Union previously considered a digital services tax to apply across all of its member states but scrapped the idea after opposition from the Nordic and other smaller low-tax EU member countries.
Praise came from both sides of the aisle on the administration’s move to launch a Section 301 investigation. Senator Chuck Grassley (R-IA) and Senator Ron Wyden (D-OR), the leaders of the Senate Finance Committee, released a joint statement applauding the decision. They also noted that “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 at the Organisation for Economic Cooperation and Development.”
The move by the Trump administration is to investigate the French DST under Section 301 is a smart one. If the French tax was allowed to be enacted without repercussion, it would send a signal to the world that American companies are open for pillaging. This strong, measured response from the administration serves as a warning that the United States will not tolerate the exploitation of its businesses by foreign tax authorities.