Engine submitted comments this week to the United States Trade Representative addressing the potential U.S. response to France’s enactment of a Digital Services Tax. The retroactive three percent tax would be levied on certain large firms providing online intermediation services and digital advertising sales with a revenue of 750 million euros globally and 25 million euros in France.
While this revenue threshold appears to be high—targeting approximately 30 of the largest firms in the world—it disproportionately affects American companies and will likely result in increased costs and burdens for U.S. startups. Many startups launch with thin margins and little-to-no revenue in their nascent stages, relying on low cost solutions to grow their ventures. Many of the American firms targeted by the French DST offer inexpensive services, such as advertising, that provide these new ventures with high value for a small financial investment.
Although larger U.S. firms are the only companies directly targeted by the DST, the added administrative burden and tax liability these companies face will likely be passed down to the user—including startups—in the form of higher costs for services. Simply put, this tax has the potential to stifle American innovation across the board.
While the growth of the digital age has brought forth the desire to reassess the international tax framework at-large, a country-by-country approach that largely targets American companies is not the way to accomplish this goal. The Organization for Economic Co-operation and Development (OECD) is currently engaged in a collaborative effort to address such a need. As we stated in our comments, “Individual countries pursuing their own digital services taxation schemes will only serve to undermine an internationally collaborative process and provide an even greater administrative burden to companies that face possible exposure in determining whether they are indeed subject to the patchwork of laws.”
