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Finance, General Economy, and Budgetary Control Committee President La France Insoumise - Nouveau Front Populaire's MP Eric Coquerel speaks during the examination a draft finance bill as part of the debate and review of the 2026 State Budget at the French National Assembly, in Paris, on October 27, 2025. (Photo by STEPHANE DE SAKUTIN / AFP) (Photo by STEPHANE DE SAKUTIN/AFP via Getty Images) AFP via Getty Images France is once again moving to hike its digital services tax (DST)—this time from 3% to 15%—and, once again, the U.S. is threatening to retaliate. The tax targets large tech firms that generate substantial revenue from French users without a physical presence, would be largely shouldered by American tech giants like Google, Amazon, and Meta. In response, U.S. lawmakers and trade officials are threatening tariffs, warning of the perils of discrimination, and dusting off rhetoric about protecting U.S. business interests abroad. If this all sounds familiar, that’s because it is. The U.S. has been engaged in this game for years—one in which a foreign government imposes a DST, the U.S. threatens countermeasures, sometimes the foreign government retreats, but nothing fundamental changes. As more countries adopt or expand these kinds of taxes, it’s becoming increasingly clear that this kind of tit-for-tat approach to international tax policymaking isn’t sustainable. The problem isn’t France, or Italy, or Canada before it—it’s the absence of a shared framework for taxing the modern digital economy. A Core Problem At the center of the issue is a fundamental mismatch between how today’s digital economy works and how international tax rules are designed. Under traditional corporate tax principles, profits are taxed where a company has a physical presence—offices, factories, or employees. After all, that would have been where the profits were generated. But digital platforms can generate enormous revenue in countries where they have none of those things. Digital service providers can collect user data, sell advertising, stream content, and facilitate e-commerce without setting foot in the market they profit from. MORE FOR YOU This disconnect has left many countries frustrated. European states are seeing American tech giants dominate local markets while paying relatively little—or even nothing at all—in local taxes. DSTs have emerged as a solution to that frustration—a way for governments to assert taxing rights over the digital activity happening within their borders, even if the corporations are at pains to ensure the income is technically booked elsewhere. For U.S. companies, that means a growing list of overlapping and inconsistent tax regimes. Two-Pillar Framework Recognizing this gap, nearly 140 countries have worked with the Organisation for Economic Co-operation and Development (OECD) to develop a global solution. Broadly a part of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), the result is a two-pillar plan designed to update international tax rules in light of the realities of an increasingly digital economy. In high-level terms, Pillar One would allow countries to tax a portion of profits large multinational corporations earn from their markets by reallocating taxing rights based on where users and customers are located. Pillar Two would implement a global minimum corporate tax rate of 15%, aimed at curbing the kinds of profit-shifting to low-tax jurisdictions that allow multinationals to book billions in business and pay nothing in tax. While many countries have begun implementing the pillars, negotiations over Pillar One have remained stuck—in no small part because of bipartisan resistance from the United State. Without that agreement, or something like it, in place, countries like France are going to continue to act unilaterally. The U.S. Role The U.S. has long opposed unilateral DSTs, arguing they unfairly target American firms. That concern isn’t entirely unfounded—most DSTs are in fact deliberately structured to capture companies with enormous global revenues. That is a category dominated by U.S. tech giants. But, at the same time, the U.S. has refused to fully commit to an international agreement. Part of the hesitation is a domestic policymaking issue: reallocating taxing rights means, necessarily, conceding some revenue to foreign jurisdictions. That’s a hard sell politically—for either party. There is also discomfort with adopting a precedent that foreign states can tax U.S. based companies simply because their services are made use of abroad. But, ultimately, by stalling a deal the U.S. is just ensuring the outcome it most wants to avoid: a patchwork of national taxes aimed squarely at its biggest firms. In trying to defend its tax base and companies, the U.S. is undermining both. Without a global agreement in place, it can’t prevent countries like France from imposing their own rules—all it can do is react and saber-rattle when they do. It also can’t offer U.S. firms predictability or stability which they need to operate globally. Time for a Strategy Shift This cycle of unilateral taxation, American outrage, diplomatic and economic threats, and repeat, is more than just tiresome. It creates real uncertainty for U.S. companies, fuels trade tensions with allies, and leaves global tax policy in a state of permanent incoherence. Tech firms are left navigating a moving target of compliance regimes and the potential for double taxation. Governments are left improvising revenue solutions in the absence of global rules, and Washington is left responding to fires it had a hand in setting. The choice isn’t between defending U.S. firms and signing on to a global deal—it’s between helping to have a hand in shaping the terms of that deal or watching other countries do it anyway. Until and unless the U.S. supports a multilateral agreement, like that found in BEPS, national digital taxes are going to continue to crop up. The U.S. will keep playing whac-a-mole and do so from its back foot. It is time for the U.S. to stop reacting and start governing—by helping finalize a framework that functions for a digital economy. Editorial StandardsReprints & Permissions
