France, United States Make Deal on French Digital Services Tax

The United States and France announced at the end of the August G-7 meeting in France that they had reached a compromise on the digital services tax recently implemented by France and strenuously objected to by the U.S.

Under the deal, France has agreed that once a globally agreed approach to taxing the digital economy is reached, it will credit any French digital taxes paid in excess of those that would have been paid under whatever new global agreement eventually comes into play.

The French tax is 3% that applies to turnover from online advertising, and affects large digital companies such as Amazon, Facebook, and Google. The U.S. considers it discriminatory against U.S. businesses, since most of the entities that will pay it are U.S. companies. France levied the tax in part to spur progress on more inclusive digital taxes, which have been stalled in the EU by various disagreements. However, the OECD continues to work on creating an agreed digital tax framework, which it believes could go into effect by 2021. The intent of such an agreement would be to resolve many of the thorny issues surrounding profit allocation and where multinational companies are taxed.

In the meantime, the U.S. and France have agreed that companies will pay the French DST in 2019 and 2021. Once a global approach is agreed upon, France will calculate what companies would owe under the global solution, and credit taxes already paid to France against that obligation, refunding any difference.

In the meantime, digital companies have begun to react to the French tax. On 1 August 2019, Amazon announced that it will increase fees to vendors selling on Amazon.fr by 3% to account for the extra cost Amazon in incurring. The extra fee will apply to all sellers on Amazon.fr regardless of where they are based. It is expected that other large companies will also impose additional fees. Such fees are then likely to increase the costs of goods and services marketed by those sellers.