The US will delay imposing tariffs on $1.3bn of French goods in response to the country’s digital services tax, heading off an escalation in transatlantic trade tensions just ahead of Joe Biden’s inauguration.
The US had previously said it would impose a 25 per cent tariff on French handbags and make-up from Wednesday to retaliate for France’s new tax on tech companies, which Washington has argued is unfair because it discriminates against American firms.
But the US trade representative’s office said on Thursday it would suspend the tariffs and instead co-ordinate them with any tariffs that might arise from a series of investigations it has launched over digital taxes in other countries.
Several governments have either already introduced or plan to introduce a digital services tax, arguing that tech companies pay too little tax on the profits they make in many countries, partly because they record them in low-tax jurisdictions such as Ireland.
Over the summer, the US trade representative Robert Lighthizer launched probes into a number of countries that are adopting digital services taxes including the UK, Italy, Turkey, Austria, Brazil, Indonesia and the EU.
A similar investigation into France, the European country with the most advanced digital services tax plans, had resulted in plans to impose tariffs of 25 per cent.
The US and France originally agreed last year to allow more time for talks on a multilateral taxation framework overseen by the OECD, the Paris-based organisation of rich countries, to play out over the course of the year. As part of that pause, France agreed to temporarily stop collecting its digital tax.
But in November, French tax authorities began demanding millions of euros in tax payments from US technology groups like Facebook and Amazon.
France has said it wants an EU proposal in early 2021 for taxation of digital services across Europe in case the OECD talks do not progress. But its preferred option remains an international solution through the organisation.
The tariff delay gives some breathing space to the incoming Biden administration, which has hoped to repair fraying ties with Europe. Democrats on Capitol Hill have argued that a multilateral solution should be negotiated through the OECD.
Valdis Dombrovskis, the EU’s trade commissioner, wrote on Twitter that the EU stood “ready to explore all options should the US unilaterally apply” the tariffs.
He added: “More broadly, we are willing to work constructively with the US on finding a timely global solution to the fair taxation of the digital sector.”
Earlier this week, USTR said that it had concluded that digital taxes in Italy, India and Turkey all discriminated against US companies.
Additional reporting by Jim Brunsden in Brussels
