France is set to begin collecting a digital services tax in mid-December, increasing the likelihood that the U.S. will proceed with plans to impose an additional 25 percent tariff on imports of soap, cosmetics, and handbags from that country starting in January 2021.
For more information, please contact Nicole Bivens Collinson or Kristen Smith.
DSTs are taxes on revenues generated from providing digital services to, or aimed at, users in the subject jurisdiction. France enacted a three percent DST earlier this year and the Office of the U.S. Trade Representative subsequently determined that it would discriminate against U.S. companies and is inconsistent with prevailing tax principles on account of its retroactivity (to Jan. 1, 2019), its application to revenue rather than income, its extraterritorial application, and its purpose of penalizing particular U.S. technology companies.
In response, USTR determined to impose a 25 percent additional tariff on 21 tariff subheadings from France with an import value of about $1.3 billion. This tariff was suspended until Jan. 6, 2021, to allow additional time for bilateral and multilateral discussions, particularly at the Organization for Economic Cooperation and Development. However, the OECD talks have made little progress and the deadline to reach an agreement was recently pushed back to mid-2021.
As a result, French finance minister Bruno LeMaire said this week that his country will begin collecting its DST beginning in mid-December. While USTR had offered no response to this development at press time, it will likely mean the U.S. will move ahead with its tariff hike as planned.
Similar tariff increases could be on the horizon for other trading partners that have adopted or are considering their own DSTs, including Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom. USTR is currently conducting a Section 301 investigation of these developments, though there has been no indication as to when it might be completed.
In the meantime, importers of goods from France and other potentially affected countries can utilize a number of proven, legitimate strategies to prepare for and mitigate the effects of any tariff increases.
- tariff engineering, where products are imported in unfinished or embellished forms to take advantage of classification provisions carrying a lower or free rate of duty
- special HTSUS Chapter 98 provisions, which cover numerous types of products used for specific purposes as well as specific production or sourcing scenarios involving U.S. or previously imported components
- operational engineering, or changing the product’s country of origin by shifting the country in which a substantial transformation is achieved
- first sale valuation, where duty is paid on the price a trading company pays the manufacturer instead of the higher price the importer pays the trading company
- excluding certain amounts typically included in the price, such as buying commissions, shipping-related charges, inspection fees, and post-importation assembly charges, from dutiable value
- bonded facilities, such as foreign-trade zones and warehouses, and temporary importation bonds
For more information on these and other strategies, please contact Mark Segrist or Mark Tallo.
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