French tech tax inflames tensions with US

12 Jul 19

A new French tax on technology giants like Google and Facebook is fuelling the escalating trade war between Europe and America, with US president Donald Trump ordering an investigation into the move that could result in retaliatory tariffs.

The French tax, approved by the country’s Senate yesterday, will apply a 3% tax on technology companies with revenue of more than €750m ($850m) of which at least €25m is generated in France.

France insists that the tax – likely to raise about €400m this year alone – does not seek to target just US companies and will affect European and Asian firms as well.

But US trade representative Robert Lighthizer said the investigation would “determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”

US senate finance committee chairman Chuck Grassley, a Republican, and senator Ron Wyden, a Democrat, backed the investigation. In a joint statement they said: “The digital services tax that France and other European countries are pursuing is clearly protectionist and unfairly targets American companies in a way that will cost US jobs and harm American workers.”

However, France argues that as a sovereign state it is free to decide how it levies taxes, reports Reuters.

“For us, [the tax] is totally compliant with international agreements,” a finance ministry source told the news agency.

“Countries are sovereign on tax matters. So for us it is inappropriate to use a trade instrument to attack a sovereign state.”

The digital tax comes after increasing concerns in recent years over the low levels of tax paid into public coffers by huge corporations such as Amazon and Facebook. These companies are often accused of avoiding taxes by taking up residence in countries with lower corporate tax rates.

The EU has been attempting to find a consensus on reform, but France decided to act unilaterally after European countries failed to agree an EU levy in the face of opposition from Ireland and some Nordic countries. Austria, Britain, Spain and Italy are among other member states looking to bring in their own digital taxes.

Last month, OECD finance ministers and central bank governors discussed the latest report on efforts to shake up the way taxes are levied on huge digital companies, and France has said it will revisit its new tax if agreement is reached at the OECD to overhaul out-of-date cross-border tax rules.

  • Gavin O'Toole, expert on Latin America
    Gavin O'Toole

    A freelance journalist. He has written six books about Latin America and taught the politics of the region at Queen Mary, University of London.

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