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France, US Agree to Table Digital Services Tax Throughout 2020

A 3 percent digital service tax on large U.S. internet firms set to begin in April is on hold as of Tuesday, allowing France and the U.S. the rest of 2020 to negotiate a resolution to their months-long dispute.

In June, French lawmakers approved a digital tax plan that charges foreign entities–such as Google, Apple, Facebook and Amazon–a levy on revenues they earn from providing digital services in the country, essentially acting as a tax on sales of online advertising space. Digital firms that generate revenue above 750 million euros ($830.9 million), with at least 25 million euros ($27.7 million) generated in France, were targeted by the levy

The tax was expected to provide the French government with about 500 million euros ($563 million) in overall collected revenue from firms that include American companies.

U.S. Trade representative Robert Lighthizer called the tax “unusually burdensome” and had floated a plan for a retaliatory tariff of up to 100 percent on $2.4 billion worth of French goods. Categories that would be impacted include handbags, champagne and fresh cheese. The plan was still in the review process, with an expected implementation target date of late January before Tuesday’s truce was disclosed.

The news last year that the U.S. was planning on implementing a retaliatory tax has had businesses figuring out how to stock up on product before the new tariffs went into effect. Intelligence Node, a research firm using AI-driven insights to help companies optimize pricing and merchandising operations, conducted a survey last month indicating that 27 percent of U.S. consumers were planning to stockpile their favorite French goods before the tariffs kicked in, while 84 percent said they would consider switching to similar U.S.-made products even if they are considered lower quality.

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Presuming the latter group actually made good on that intent, that would correlate with a sales decline for many French luxury brands.

Other countries are also moving away from free cross-border transactions to as they look for ways to generate revenue for governmental budgets.

Similar digital services taxes are on the horizon.

Italian lawmakers have a tax on the books that went into effect Jan. 1, 2020, also at 3 percent. Turkey’s 7.5 percent tax is effective date in March 2020. And U.K. Prime Minister Boris Johnson is backing a plan for a 2 percent tax on sales of digital services in the U.K. that is set to take effect in April and expected to raise nearly 500 million pounds ($655.0 million) in revenue. The Czech Republic has a proposal for its own digital services tax that has been presented to its legislature, while Austria’s proposed draft plan calls for a 5 percent tax rate.