U.S. launches Section 301 investigation into French digital services tax

The United States has launched a Section 301 investigation into France's planned tax on digital services, the Office of the U.S. Trade Representative (USTR) announced on Wednesday.

Ambassador Robert Lighthizer, United States Trade Representative, testifies to United States House of Representatives Committee on Ways and Means during a hearing on 2019 trade policy on Capitol Hill in Washington, D.C. [File Photo: IC]

"The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies," USTR Robert Lighthizer said in a statement.

"The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce," Lighthizer said.

France's lower house of parliament approved Thursday a tax bill targeting multinational digital giants. The bill foresees a 3-percent tax on the French revenues of digital companies with global revenue of more than 750 million euros, and French revenue over 25 million euros.

"The structure of the proposed new tax as well as statements by officials suggest that France is unfairly targeting the tax at certain U.S.-based technology companies," the statement claimed.

The United States will continue its efforts with other countries at the Organization for Economic Co-operation and Development (OECD) to reach a multilateral agreement to address the challenges to the international tax system posed by an increasingly digitized global economy, the USTR office said.

The Information Technology Industry Council (ITI), a Washington-based trade association representing the information and communications technology industry, on Wednesday urged the U.S. government not to use tariffs as a remedy.

"We support the U.S. government's efforts to investigate these complex trade issues but urge it to pursue the 301 investigation in a spirit of international cooperation and without using tariffs as a remedy," said Jennifer McCloskey, ITI's vice president of policy, in a statement.

"It is critical that countries around the world cooperate to address these questions, and the ongoing OECD discussions are a promising example of the international collaboration that is necessary to resolve these issues fairly and thoughtfully," McCloskey said.

The so-called Section 301, under an outdated U.S. trade law adopted in 1974, allows the U.S. president to unilaterally impose tariffs or other trade restrictions on foreign countries. The latest Section 301 investigation could lead the United States to impose new tariffs on French imports, if Washington and Paris cannot reach a negotiated settlement.

The global trading community has become increasingly concerned that the U.S. government's frequent use of Section 301 would go against the World Trade Organization rules, undermine the multilateral trading system and disrupt the global supply chain.