MNI EXCLUSIVE: France May Suspend, Not Rescind Digital Tax

By Brooke Migdon

     WASHINGTON (MNI) - France could suspend rather than rescind its tax on

digital services in the event of a compromise with the United States ahead of

what could be a broader deal brokered by the Organisation for Economic

Cooperation and Development, MNI understands.

     A suspension could come as early as Monday as U.S. Treasury Secretary

Steven Mnuchin and French Finance Minister Bruno Le Maire meet on the margins of

the World Economic Forum in Davos, Gary Hufbauer, a former U.S. Treasury

official and current international trade and tax policy researcher at the

Peterson Institute for International Economics, said.

     "I think there could be an interim compromise," he said, suggesting

revenues from the tax could be placed in an escrow account with the possibility

of returning it to U.S. companies if an agreement is reached.

     The 3% duty on revenue from digital services provided within France's

borders by companies with total annual income of at least EUR750 million went

into effect Jan. 1, but is applied retroactively from Jan. 1 of last year.

     France could also opt to keep funds owed for 2019, but suspend the tax for

the remainder of 2020, temporarily settling tensions while the two parties try

to reach a more comprehensive agreement before the end of the year, according to

Hufbauer, who helped negotiate several international tax policy frameworks with

the European Union during his tenure at Treasury.

     "It's a possibility, but I would say the likelihood depends on the broader

framework of agreement between the U.S. and France or the U.S. and Europe,"

Hufbauer said. "If tensions escalate on other issues, then I think that makes a

compromise less likely -- a lot less likely."

     --THREATENED RETALIATION

     "There are many other irritants in the relationship right now and every day

there is the potential for a new irritant to flare up that could complicate the

situation," Bernd Janzen, a former attorney in the Office of the Chief Counsel

for Import Administration, said.

     Washington has threatened a 100% tariff on imported French wine, cheese and

other goods totaling $2.4 billion following a U.S. Trade Representative

investigation that concluded the digital services tax targeted U.S. companies.

France has maintained the tax does not discriminate, as it also affects a

handful of Chinese, Spanish and French corporations and says it will have no

choice but to retaliate should U.S. tariffs go into effect.

     The OECD announced in May that it aimed to establish a global framework on

digital services taxation by June of 2020 and continue working toward a

"consensus-based, long-term solution" by the end of this year.

     France's Le Maire encouraged the U.S. to support the OECD process or run

the risk of dealing with each country's tax on digital services individually

while speaking to reporters Friday in Paris, Reuters reported. The UK, Turkey

and the Czech Republic, among others, have all either announced or published

proposals to introduce a tax on digital services and Italy enforced its own tax

earlier this year. U.S. Trade Representative Robert Lighthizer said in December

the U.S. is considering investigations into the digital services taxes of other

countries, including several EU members.

     On his first official visit to Washington as the EU's newly minted trade

chief last week, Phil Hogan said Le Maire and Mnuchin were in daily

communication to reach a compromise as early as possible. Hogan has said the EU

will stand by France until this dispute is resolved.

     "It sounds awfully ambitious to wrap this up so quickly," said Janzen, now

a partner at Washington-based law firm Akin Gump specializing in Section 232 and

301 tariff litigation. "But maybe it will be. If the U.S. and China can agree to

this stage one deal, it should be possible for the U.S. and France to find some

compromise here on digital services taxation."

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

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