Date: Monday, January 11, 2021
Source: The Wall Street Journal
WASHINGTON—The U.S. on Thursday suspended plans to impose tariffs of 25% on French luxury goods in response to France’s tax on big tech companies like Facebook Inc. and Amazon.com Inc., saying it wants to coordinate its response with its efforts in similar disputes with other countries.
The U.S. Trade Representative threatened to impose the tariffs last year, in retaliation for France’s 3% levy on certain revenue from big technology companies, which the U.S. said unfairly targeted American businesses. The tariffs had been scheduled to take effect Wednesday.
The suspension of the tariffs on French products was welcomed by U.S. importers and retailers that had criticized such punitive tariffs as a tool that aims to protect one industry at the expense of another, while hurting American consumers.
The decision puts the onus on President-elect Joe Biden and his administration to address increasing demands by other countries for global technology companies to pay more taxes where their customers are located.
“The Biden administration is being given the opportunity to implement their own strategy on discriminatory digital taxes,” said Sen. Ron Wyden (D., Ore.), the likely next chairman of the Senate Finance Committee. “America is going to have to respond. Many of these unilateral taxes have been designed to target American companies that are generating high-skill, high-wage jobs.”
U.S. lawmakers in both parties have consistently backed the Trump administration’s approach as necessary for defending the U.S. tax base.
In suspending the French tariffs, the USTR said its investigations into digital-services taxes, or DSTs, in other countries “have significantly progressed, but have not yet reached a determination on possible trade actions.”
“A suspension of the tariff action in the France DST investigation will promote a coordinated response in all of the ongoing DST investigations,” the USTR said.
The USTR has investigated similar measures by the European Union and several countries since June. It said Wednesday it had concluded that the digital-services taxes of India, Italy and Turkey discriminate against U.S. companies.
The agency said it wasn’t taking any specific actions for now but that it would continue to evaluate all available options. Investigations into practices of the EU, Austria, Brazil, Czech Republic, Indonesia, Spain and the U.K. continue.
Negotiations among the Organization for Economic Cooperation and Development, a group of wealthy nations, to build a framework for digital-services taxation have stalled.
That has led leading countries including France to implement their own national measures targeting companies such as Alphabet Inc.’s Google and Amazon. France had suspended collection of its digital tax in 2020 to allow for international negotiations, but resumed collection in December.
The European Commission, which leads EU trade policy, had previously said it was ready to issue retaliatory tariffs against U.S. goods to support France.
On Thursday, Valdis Dombrovskis, an executive vice president at the commission, said the bloc had taken note of the U.S. suspension and was “willing to work constructively with the U.S. on finding a timely global solution to the fair taxation of the digital sector.” But he added that the “EU stands ready to explore all options” if the U.S. moves ahead with tariffs.
A spokeswoman for the French Finance Ministry said France had not suspended its tax or offered any concessions to the U.S. French officials have said they plan to push the Biden administration to rescind the tariffs altogether, and that they would rescind France’s digital tax once there is an acceptable global tax deal.
The French tax will bring in more than 400 million euro, equivalent to $490 million, for 2020, officials say. India and Austria have been collecting their taxes, and Italy, Spain and the U.K., among other countries, have said that their digital-services taxes would be payable in coming months.
The investigations conducted by the USTR into the DSTs should give the incoming Biden administration “significant leverage in its conversations with other countries,” said Stephen Vaughn, a former USTR general counsel under U.S. Trade Representative Robert Lighthizer now at King & Spalding LLP.
“I think other countries will be well advised to engage seriously with the United States on this topic.” Mr. Vaughn said.
The USTR, in a filing last year laying the groundwork for the tariffs, said it is responding to the French tax, calling it an unreasonable or discriminatory measure that burdens or restricts U.S. commerce. France has responded that the U.S. tariffs wouldn’t be in compliance with World Trade Organization commitments.
Jon Gold, vice president of supply chain and customs policy at the National Retail Federation, applauded the decision to suspend tariffs. The U.S. should seek to negotiate a comprehensive agreement to address digital-services taxes, he said.
While businesses, including tech giants, have largely opposed unilateral taxes like France’s, they have supported the OECD’s international negotiations on how to tax the digital economy.