On The Hill

French DST Escalates Trade Tensions

On Monday (Dec. 2), the Trump administration threatened to impose tariffs of up to 100 percent $2.4 billion worth of French products. The announcement comes following an investigation by the United States Trade Representative (USTR) that found France’s digital services tax (DST) unfairly discriminates against large U.S. tech companies, most notably tech giants like Google, Facebook, Apple and Amazon.^[1] The French tax is estimated to bring in between $500 million and $1 billion in revenue. “USTR’s decision today sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on U.S. companies,” US Trade Representative Robert Lighthizer said in a statement. “The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets U.S. companies, whether through digital services taxes or other efforts that target leading U.S. digital services companies,” Lighthizer added.^[2] USTR will hold a public hearing Jan. 7 on proposed actions and will accept public comment through Jan. 14. In response, France’s Economy Minister Bruno Le Maire announced the U.S. will face “strong retaliation” from the EU should tariffs be imposed. The minister’s comments were backed by EU Trade Chief Phil Hogan. “With regard to the section 301 investigation in the French digital service tax, the commissioner assured Minister Le Maire that this is a European matter.” Hogan said in a statement. “As in all trade-related matters, the EU will act and react as one,” he added.^[3] Le Maire also noted that France is willing to withdraw the DST should Washington accept the Organization for Economic Cooperation and Development’s (OECD) forthcoming proposal on global digital taxation.^[4] Despite the OECD’s commitment to a finalizing proposal by July 2020, multilateral solution, at this time, is highly unlikely.

Ways and Means Democrats Push for Action on SALT

House Ways and Means Democrats are pushing for a floor vote by year’s end on their measure to temporarily repeal the state and local tax deduction cap put in place by TCJA. This may prove challenging: despite Chairman Richard Neal (D-MA) proclaiming they were in “final stages”, the committee has yet to release the bill, though they hope to hold a markup next week. Ways and Means Ranking Member Kevin Brady (R-TX) believes efforts on the legislation, which is dead on arrival in the Republican-controlled Senate, are fruitless. “At the end of the day I don’t know what the fictional timetable is, but it is deader than a doorknob,” Brady said.^[6] 

Supreme Court Hears Bank Refund Case, Likely to Have Limited Impact

On Tuesday (Dec. 2), the Supreme Court heard arguments in Rodriguez v. Federal Deposit Insurance Corp. (FDIC) and will decide whether a $4.1 million tax refund belongs to a failed bank or its corporate parent. FDIC, a receiver for defunct United Western Bank, is arguing with the United Western Bancorp Inc., over who is entitled to the refund. The refund itself stems from a 2010 tax year loss United Western Bank incurred that it carried back to its 2008 tax year price.^[7] Due to the restrictions TCJA imposed on corporations ability to carry back net operating losses, the ruling will have limited impact on future cases.

Treasury and IRS Release Foreign Tax Credit and BEAT Regulation

This week, the Treasury Department and Internal Revenue Service (IRS) released final regulations implementing the base erosion and anti-abuse tax (BEAT), section 59A. The final regulations retain the basic approach and structure of the 2018 proposed regulations, with certain revisions. Treasury and the IRS also released final regulations addressing the foreign tax credit, including changes to address provisions of the TCJA, and proposed regulations that provide guidance relating to the allocation and apportionment of deductions and creditable foreign taxes, the definition of financial services income, foreign tax redeterminations, availability of foreign tax credits under the transition tax, and the application of the foreign tax credit limitation to consolidated groups.

References

^[1] Palmer, Doug “U.S. threatens tariffs on $2.4B French cheeses, other good in tax dispute” Politico Pro, 2 Dec 2019 https://subscriber.politicopro.com/article/2019/12/02/us-threatens-tariffs-on-24b-french-cheeses-other-goods-in-tax-dispute-074835

^[2] Palmer, Doug “U.S. threatens tariffs on $2.4B French cheeses, other good in tax dispute” Politico Pro, 2 Dec 2019 https://subscriber.politicopro.com/article/2019/12/02/us-threatens-tariffs-on-24b-french-cheeses-other-goods-in-tax-dispute-074835

^[3] Hanke, Jakob “EU’s Hogan threatens to hit back if Trump slaps tariffs on France” Politico Pro, 4 Dec 2019 https://subscriber.politicopro.com/article/2019/12/eus-hogan-threatens-to-hit-back-if-trump-slaps-tariffs-on-france-3974627

^[4] Hanke, Jakob “France: EU will retaliate if Trump imposes tariffs” Politico Pro, 3 Dec 2019 https://subscriber.politicopro.com/article/2019/12/france-eu-will-retaliate-if-trump-imposes-tariffs-3974571

^[5] Lorenzo, Aaron “Mnuchin raises ‘serious concerns’ about some elements of OECD tax talks” Politico Pro, 4 Dec 2019 https://subscriber.politicopro.com/article/2019/12/mnuchin-raises-serious-concerns-about-some-elements-of-oecd-tax-talks-1837220

^[6] Murphy, Colleen “Hill Tax Briefing: SALT Action Brewing in House” Bloomberg Government, 5 Dec 2019 https://www.bgov.com/core/news/#!/articles/Q21DIY6KLVR4

^[7]Rosen, Amy Lee “Justices’ Bank Refund analysis Likely to Have Limited Impact” Law360, 2 Dec 2019 https://www.law360.com/tax/articles/1224092/justices-bank-refund-analysis-likely-to-have-limited-impact