Reed Smith Client Alerts

On December 2, 2019, the Office of the U.S. Trade Representative (USTR) issued a Section 301 Investigation Report on France’s Digital Services Tax (DST), concluding that France’s DST discriminates against U.S. companies, is inconsistent with prevailing principles of tax policy, and is unusually burdensome for affected U.S. companies. The USTR's proposed action in response to the DST includes additional ad valorem duties of up to 100 percent on certain products of France. The list of French products subject to potential duties includes 63 tariff subheadings with an approximate trade value of $2.4 billion. The USTR has invited public comment on these issues.
Aerial panoramic cityscape view of Paris, France with the Eiffel tower on a fall day


On March 6, 2019, the French government released a proposal for a 3 percent tax on revenues generated by some companies from certain digital services (the DST). The two houses of the French parliament passed DST bills on April 9 and May 21, 2019, and agreed on a final bill on July 4, 2019. On July 24, 2019, President Emmanuel Macron signed into law a 3 percent levy on gross revenues generated from "digital interface" and "targeted advertising" services provided "in France." The DST applies only to companies that generate €750 million globally and €25 million in France, and requires that covered companies calculate revenues attributable to France using formulas specified under the law. The services covered under the law are ones where U.S. firms are global leaders. The DST applies retroactively beginning January 1, 2019.

On July 10, 2019, the USTR initiated an investigation of the French DST pursuant to section 302(b)(1)(A) of the Trade Act of 1974, as amended (Trade Act). Section 301 of the Trade Act sets out three types of acts, policies or practices of a foreign country that are actionable: (i) trade agreement violations; (ii) acts, policies or practices that are unjustifiable (defined as those that are inconsistent with U.S. international legal rights) and burden or restrict U.S. commerce; and (iii) acts, policies or practices that are unreasonable or discriminatory and burden or restrict U.S. commerce. If the USTR determines that an act, policy or practice of a foreign country falls within any of the categories of actionable conduct, the USTR must determine what action, if any, to take. Authorized actions include "imposing duties, fees, or other import restrictions on the goods or services of the foreign country."