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handle is hein.crs/goveclm0001 and id is 1 raw text is: C rss niRs Service rnQh ItiAt de 9 Updated March 1, 2021 Section 301 Investigations: Foreign Digital Services Taxes (DSTs) Background An international debate is occurring over the global taxing rights ofrevenues and profits earnedby multinational corporations (MNCs) in certain digital economy sectors. This debate is driven by concerns that theseMNCs are not adequately taxed, and some governments argue that the right to tax some of the MNCprofits should be reallocated fromthe jurisdiction where the MNCclaims residence to the juris diction where the MNC's customers are located. Some countries haveimposed unilateral digitalservices taxes (DSTs) on the gross revenues earnedby digital economy MNCs. These taxes target certain MNC digital trans actions with domestic businesses or online activities directed ultimately toward domestic users, even ifthe corporation does not have a physicalpresence in the country. Some Members of Congress and others contend that, based ontheirdesign, many oftheseDSTs disproportionately target large U.S. MNCs. In addition, some observers argue that the proliferationof such unilateral meas ures could undermine basic principles of the current internationaltaxation system. The United States and more than 130 countries, comprising both members andnonmembers of the Organisation for Economic Cooperation and Development (OECD), are negotiating policy recommendations in an attempt to update the global taxsystemand develop an international digital tax framework. The OECD Secretariat originally announced its intent to conclude these negotiations by the end of2020. However, due to the Coronavirus Disease 2019 (COVID-19) pandemic and criticalpolicy differences among countries, the organization is now aiming to reach a dealby mid-2021. Despite ongoing negotiations at the OECD, some countries, particularly in Europe and Asia, have proposed, announced, or implemented DSTs. France's DST-by far the most controversial-was the subject of a 2019 investigation by the U.S. Trade Representative (USTR), under Section 301 of the Trade Act of 1974. In June 2020, the USTRlaunched new investigations into theimplemented or proposed DSTs of 10 other U.S. trading partners. Overview of Section 301 Title III of the Trade Act of 1974 (Sections 301-310, codified at 19 U.S.C. §§2411-2420), titled Relief from Unfair Trade Practices, is often collectively referred to as Section 301. It grants the USTR arange of responsibilities and authorities to impose trade sanctions on foreign countries that violateU.S. trade agreements or engage in acts that are unjustifiable, unreasonable, or discriminatory andburdenU.S. commerce. Prior to 1995, the United States used Section 301 to unilaterally pressure other countries to eliminate tradebarriers and open their markets to U.S. exports. The creation of an enforceable dispute settlement mechanismin the World Trade Organization (W TO) in 1995, strongly supported at the https://crs repo time by the United States, significantly reduced the use of Section 301. While the United States retains the flexibility to s eekrecourse for foreign unfair trade practices in the WTO or under Section 301, a determination to bypass W TO dispute settlement andimpose retaliatory measures (if any) in response to a Section 301 investigation may be challenged at the WTO. France's Digital Services Tax France enacted a DST formally on July 24, 2019. The DST applies a 3% levy on gross revenues derived fromtwo digital activities ofwhich French users are deemed to play a major role in value creation: (1) intermediary services, and (2) advertising services based on users' data The law excludes certain services, including digital interfaces forthe delivery ofdigital content. The DST applies only to companies with annualrevenues fromthe covered services ofat leastf750million ($909 million) globally and 25 million ($30 million) in France. Covered companies are required to calculate revenues attributable to France (and, therefore, covered by the DST) using formulas specified in the law. Section 301 Investigation of French DST In its investigation, initiatedin July and completed in December 2019, the USTR concluded that France's DST discriminates against major U.S. digital companies and is inconsistent with prevailing international taxpolicy principles. The findings of the investigation and the prospect of U.S. retaliation reportedly prompted France in January 2020 to suspend its DST for the remainder of 2020 and continue working with the United States at the OECD to reach a compromise on international digital taxation. The USTR faced a July 10, 2020 statutory deadline to make a determination on what action-if any- to take as part of the Section 301 investigation; it ultimately determined that the United States should take retaliatory actionin the form of additional duties. In July 2020, the agency announced that it would impose additional tariffs of 25% on about $1.3 billion worth ofimports, or about 2.2% of all U.S. goods imports from France in 2019 (see Text Box). At the same time, the USTR also announced thatit would delay the implementation for 180 days (untilJanuary 6, 2021) to allow more time for bilateral and multilateral discussions that could lead to a satisfactory resolution of this matter. Proposed Section 301 Tariffs The list of imports on which the USTR determined to impose tarifs is narrower than thatoriginally proposed in December 2019, which had an annual import value of approximately $2.4 billion, covered dairy products, soaps, cosmetics, sparkling wine, handbags, and porcelain, and contemplated possible fees or restrictions on services of France. The final list is limited to certain cosmetics, soaps, and leather goods. According to the USTR, in determinng the level of trade affected by the action, the agency co nsidered the

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