US-France Digital Service Tax Deal: Ceasefire or Surrender?

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Posted by Gray Gaertner on Thursday, February 6th, 2020, 11:23 AM PERMALINK

Macron has folded on the Digital Service Tax (DST), but the drums of a trade war haven’t entirely silenced yet. During the most recent annually organized World Economic Forum in Davos Switzerland, US President Donald Trump and French President Emanuel Macron agreed to not raise tariffs or taxes for the rest of 2020. If the deal had not been made, the fallout from the DST dispute had the potential to spin off into a full-scale US-EU trade war. This mess started because on July 9, 2019, France imposed a Digital Service Tax on large internet companies, although a process by the Organization for Economic Cooperation and Development (OECD) to find common ground internationally had already begun. France, which doesn’t have any large enough digital service companies of its own, wanted to tax 3 percent of tech firms with €750 Million ($827 Million) in annual revenue, parting from the current tax on profits in the country where the company is based. 

The tax inspired President Trump to launch an investigation into whether or not France targeted US tech firms.  A United States Trade Representative report released on December 2, 2019  determined France absolutely was discriminating against US digital companies, including Facebook, Amazon, and Alphabet. After many months of US threats to slap tariffs on French goods worth $2.4 Billion, US Treasury Secretary Steve Mnuchin and French Minister of Finance and Economy Bruno Le Maire officially negotiated the delay on tariffs and taxes. The delay buys everyone much needed time to go back to the negotiating table in 2020, and for the United States to convince other countries who want to impose DST it is not as easy as the EU and France initially thought. 

With the bilateral spat temporarily delayed, pressure rises on the OECD to create an transatlantic framework everyone can agree to. 

Photo Credit: Chairman of the Joint Chiefs of Staff

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