- with readers working within the Banking & Credit industries
A recently proposed fivefold increase to France's digital services tax ("DST") has reignited U.S. concerns about foreign taxes that allegedly discriminate against American companies. In a statement released on October 27, the House Ways and Means Committee warned that France's move leaves the United States "with little choice but to pursue aggressive retaliatory actions."
France's DST applies to revenue from targeted advertising services and other digital interface services earned by large multinationals (those with more than €750 million in global digital revenues and more than €25 million attributable to sales in France). The proposal would increase the global digital revenues threshold to €2 billion. Although the proposal to increase the tax rate from 3% to 15% was ultimately scaled back to 6% (and remains pending approval), the proposal has nonetheless intensified U.S. scrutiny of DSTs worldwide.
The United States is now collecting written assurances from several trade partners—including Argentina, Ecuador, El Salvador, Guatemala, Liechtenstein and Switzerland—that they will not impose DSTs (although none of these jurisdictions currently have a DST).
Business groups and U.S. lawmakers argue that DSTs disproportionately burden American tech companies like Amazon, Apple, Google and Meta, in part because high revenue thresholds capture only the largest players and because taxing revenues without requiring physical presence in the taxing country arguably extends to value created in the United States. Ways and Means Republicans explicitly referenced possible retaliation for countries that impose DSTs—including by reviving Section 899, a punitive tax that appeared in early drafts of the One Big Beautiful Bill Act ("OBBBA"), as we covered here. The so-called "revenge tax" was designed to target countries that impose DSTs and other discriminatory taxes on U.S. companies. Treasury ultimately dropped the provision in June after reaching an understanding that U.S. companies would be exempt from key parts of the Organization for Economic Cooperation and Development's ("OECD") global minimum tax.
The statement indirectly references Section 899 as an example of a retaliatory tax measure, noting that "Ways and Means Republicans did not hesitate to introduce and advance legislation through the U.S. House of Representatives to protect our nation's interests overseas" during the OECD global tax negotiations. As discussed here, Section 899 resurfaced in September when Treasury signaled it would support reviving the provision if the OECD failed to deliver on its commitments to the United States.
With France's DST proposal amplifying tensions, and new trade deals being negotiated around promises not to impose a DST, Section 899 lingers in the background as a possible tool of retaliation.
It remains to be seen how the Trump Administration's sharpened focus on DSTs will shape U.S. tax policy and ongoing trade negotiations. We'll keep running it down in Brass Tax.
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