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Under a proposed revision to France’s digital services tax (DST), the United States’ largest technology companies could face a doubling of the levy — a threat that has led U.S. lawmakers to warn of possible new retaliatory tariffs.
The amendment, which passed France’s National Assembly on Oct. 28 as part of the country’s 2026 budget bill, would raise the DST from 3% to 6% while also increasing the global revenue threshold from €750 million to €2 billion (about $2.3 billion). This move is in contrast with some other countries around the globe that are backing off from their DSTs or exempting U.S. companies in the face of U.S. tariff threats.
An initial proposal to raise the French DST fivefold to 15%, which passed the National Assembly’s finance committee and spurred strong pushback from the U.S. business community and the top taxwriter in the House, was pared back before the latest vote. However, an increase of any magnitude could trigger action by the Trump administration, which threatened 100% tariffs on certain imports from France when the EU country first imposed its DST in 2019. Those tariffs and the collection of the DST were delayed, and 25% tariffs were later suspended to allow for broader international tax negotiations at the OECD.
The administration renewed a Section 301 investigation into the DSTs of France and several other countries earlier this year. Canada suspended its own DST plan this summer after President Trump suspended bilateral trade talks, and Italy is reportedly planning to repeal its DST in its 2026 budget. Preliminary trade agreements President Trump announced this month with Cambodia and Malaysia would prevent those nations from implementing DSTs, VATs or similar measures that “discriminate against U.S. companies.” However, while the UK’s DST featured prominently in U.S.–UK trade discussions this May, the UK government confirmed the levy would remain in place under the new agreement. HMRC has since reported DST receipts of approximately $1 billion for 2024–25, an increase of about 25% from 2023–24.
French lawmakers’ initial plan to dramatically increase the DST drew sharp criticism from House Ways and Means Committee Chair Jason Smith (R-Mo.), Tax Subcommittee Chair Mike Kelly (R-Pa.) and Trade Subcommittee Chair Adrian Smith (R-Neb.), who issued a statement saying, “France’s proposed increase in its digital services tax would be an unwarranted attack on America’s digital companies and leave the U.S. Congress and the Trump Administration with little choice but to pursue aggressive retaliatory actions,” adding, “Should France move forward with raising its digital services tax five-fold to target American digital companies, the Ways and Means Committee will work with President Trump to respond in a manner consistent with the president’s America First trade policy.”
The Republicans have not responded to the passage of the amendment doubling the tax.
Grant Thornton insight:
Earlier this year, Republicans included in initial versions of the tax bill known as the One Big Beautiful Bill Act (OBBBA) a proposed measure, Section 899, that would have imposed harsh retaliatory taxes on businesses and individuals from countries with “unfair foreign taxes” such as a DST or an undertaxed profits rule (UTPR) under Pillar 2. This provision was pulled from the final legislation after G-7 countries reached an understanding to treat the U.S. tax regime as Pillar 2-compliant under a “side-by-side” approach, removing U.S. multinationals from both income inclusion rules (IIRs) and UTPRs. That agreement is now being negotiated and fleshed out among the broader OECD Inclusive Framework, and congressional Republicans have maintained the threat of reviving Section 899 if the agreement is not on a path to implementation by the end of this year. (Read more about this here.) While DSTs were specifically called out in Sec. 899 as unfair foreign taxes, indications are that U.S. taxwriters view these taxes as something to be addressed by the administration in the trade arena — through bilateral negotiations or Sec. 301 tariffs — rather than something that would renew Section 899.
The French proposal to increase the DST is not yet law and must still undergo several steps before it can be enacted. The larger budget in which the provision is included is scheduled to be voted on this week, and then it will need passage by the Senate and presidential approval. After the National Assembly passed the amendment, France’s finance minister, Roland Lescure, said the government “takes note of Parliament’s desire to strengthen the tax on digital giants” but warned that a “disproportionate” tax would lead to “disproportionate” retaliatory measures.
Grant Thornton insight:
With a minority government and recurring budget standoffs in France, the endgame remains fluid, and the measure could be revised or delayed in the Seante or in last-minute budget talks. While this tax increase is not certain to occur, U.S. multinationals subject to the DST should assess the impact that a 6% levy would have on their tax liabilities in France and on their global tax strategies. Companies currently subject to the DST but below the proposed higher global revenue threshold of €2 billion should also monitor the legislation.
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