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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."
     "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:
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