Earlier this year, the US Trade Representative ("USTR") announced that it would indefinitely suspend Section 301 tariffs on certain luxury goods made in France – including handbags and cosmetics – following its investigation into the French Digital Services Tax ("DST") ) are connected. and in doing so left people like Hermès and Co. off the hook of the significant effects that were to be expected after such a mandatory overhaul. While the U.S. trade organization has protected French companies from this particular type of tax treatment, certain clothing and leather goods, cosmetics, and fragrances from countries like Italy and the United Kingdom are still in the crosshairs of a burgeoning trade war.
In a statement in late March, the USTR announced the "next steps" in its ongoing Section 301 investigations, which focus on the imposition of taxes on the digital profits of companies that achieve certain levels of revenue. With American tech giants like Facebook Inc., Google, Amazon, and Apple among the hardest hit by such relatively new digital tax systems, the USTR initiated investigations into national daylight saving times that have been passed or scrutinized in a number of jurisdictions – starting with a few Cases expanded in 2019 and beyond – to examine each tax initiative and determine where it falls within the larger context of international tax and trade law.
"In January, the USTR found that the summer times passed by Austria, India, Italy, Spain, Turkey and the United Kingdom discriminated against US digital companies, were inconsistent with international taxation and were a burden on US companies" The USTR stated in its statement at the end of last month, in which it noted that the public announcement and commentary process on possible trade measures will be continued "in order to maintain procedural options before the expiry of the statutory one-year deadline for the completion of investigations".
Given the types of goods that the USTR levies tariffs on in response to the various national DST programs, fashion is at the heart of the matter. For example, in its proposal for the UK, the USTR recommends adding tariffs of up to 25 percent on fragrances, various types of makeup (including lipstick, nail polish, powder, etc.), skin care products, “women's or girl's clothes”, knitted or crocheted, including from synthetic fibers, women's and men's coats and various types of shoes. The tariffs proposed by the US government agency for Italy are even more focused on fashion. The government is proposing tariffs for a wider range of goods – from handbags (which are not on the UK list) and shoes to suit jackets for women or girls and blazers "and" tracksuits for men or boys ".
While the proposed tariffs are still subject to a public notice and commentary process, they are a cause for concern given that such trade disputes are "hugely damaging to companies' ability to export to the US," according to Helen Brocklebank, CEO of UK luxury retail group Walpole, its members include Alexander McQueen, Burberry, Farfetch, Mulberry and Net-a-Porter. KPMG's Amie Ahanchian, Donald Hok, Philippe Stephanny and Elizabeth Shingler agree, saying that the proposed tariffs "raise serious concerns about the possibility of increased trade tensions" while "significantly increasing the cost of doing business for many companies". ”Including those in the fashion sector.
With this in mind, they stated in a Bloomberg Tax article that "Understanding the abatement options available to importers is essential to prepare for (such) potential retaliatory tariffs." For example, it states: “Section 301 tariffs may qualify for a discount if goods imported into the United States are subsequently exported either: (1) As contained in US-made products (i.e., goods imported into the United States). H. Manufacturing disadvantage); or (2) in the same condition as originally imported (i.e., unused goods or detriment in the same condition). "Because the disadvantage rules allow companies to reclaim 99 percent of the tariffs originally paid on imported goods upon export (subject to customs regulations), it is becoming" an increasingly popular tariff reduction program because of the significant savings it offers, "said Ahanchian. Hok, Stephanny and Shingler.
Similarly, the First Sale For Export Tariff Reduction Program (“FSFE”) may also prove effective if the US importer can demonstrate that “the alleged FSFE transaction is a bona fide sale that the goods are clearly for are intended for export to the USA and that the price that the foreign middleman pays the foreign manufacturer is at market conditions. "Ahanchian, Hok, Stephanny and Shingler claim that this program has historically been used" with retail and clothing importers who have faced high tariffs. " It is becoming increasingly popular in other industries due to the high tariff environment and requirements. Strict and reasonable care must be taken to apply the FSFE principle. The US importers have made significant savings by implementing this strategy. "
What will ultimately result from the US customs threats is unclear. "It is believed that the Biden Administration will ultimately seek to resolve the daylight saving time disputes and other international taxation issues by building consensus among members of the Organization for Economic Co-operation and Development," said attorneys at Husch Blackwell LLP, Camron Greer and Turner Kim, noting that "Treasury Secretary Janet Yellen also supports the opening of OECD negotiations on the separate issue of minimum corporate taxation". Meanwhile, US Trade Representative Katherine Tai says the US "has an obligation to work with its trading partners to address concerns about taxes on digital services" and "continues to seek international consensus on international tax issues through the OECD process achieve". However, Tai contends that "until such a consensus is reached, we will maintain our options under the Section 301 process, including the imposition of tariffs where appropriate."
Regardless of the outcome, Ahanchian, Hok, Stephanny and Shingler expect that "it is likely that tariffs will continue to be part of the political toolbox".