Introduction of Digital Service Tax by France Targeting US Digital Companies-Policy Response by United States
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Modern day digital economy poses challenges for taxation system based on traditional rules of physical presence and transfer pricing rules. Prolonged multilateral efforts are yet to come out with a final globally acceptable solution. Consequently, many countries have begun taking unilateral measures to tax their digital economy. These steps violate the accepted norms of international taxation. The latest decision by France in the form of Digital Service Tax goes a step further in being tailor made to target US based digital companies while excluding the French companies from the tax net. This paper explores the existing position and the available options for a response by US side and recommends taxation of French companies at double the prevalent rate as the preferred option. For this purposes, the paper recommends issuance of an executive order by the President of the Untied States in exercise of the power vested in him by Section 891 of the Tax code 26. The papers claims that this would provide a sufficiently strong reply to France action with immediate impact and also recoup the revenue losses to the US government. The paper also explains how it would be a good deterrence for other countries that are in the process of introducing similar legislations.