US mulls retaliation to French tech tax

The US is preparing tariffs on $2.4bn (£1.85bn) worth of French exports as retaliation against the country’s new digital services tax.

The top US trade official said the new tax, which France approved in July, unfairly targets American tech giants.

He said the potential tariffs were intended to deter other countries from taking similar steps.

The items that could face tariffs at rates up to 100% include cheese, sparkling wine, make-up and handbags.

The decision “sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on US companies”, said US Trade Representative (USTR) Robert Lighthizer.

‘Growing protectionism’

Mr Lighthizer announced the potential tariffs, which will now enter a public comment period, at the end of his office’s investigation of the French tax.

It found that the law – which taxes turnover instead of profit – was inconsistent with international tax norms and “unusually burdensome” for US tech firms.

Mr Lighthizer said the US is exploring opening investigations into similar laws in Austria, Italy and Turkey. The UK has also taken steps towards a tech tax.

“The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies, whether through digital services taxes or other efforts that target leading US digital services companies,” he said.

France has long argued that taxes should be based on digital activity, not just where firms have their headquarters.

Its new law imposes a 3% tax on sales of certain digital services that happen within its borders. It applies to any digital company with revenue of more than €750m ($850m; £670m) – of which at least €25m is generated in France.

The tax will go into effect retroactively from early 2019 and is expected to raise about €400m this year.

About 30 companies are expected to pay it, mostly US firms such as Alphabet, Apple, Facebook, Amazon and Microsoft.

Amazon has already responded by raising fees for French businesses by 3%.

A picture taken on october 18, 2019 shows AOP (Appellation d'Origine Protegee - Protected Designation of Origin) cheese during the AOP fair in front of the Hotel de Ville in Paris.
Image captionThe US is considering tariffs on cheese, sparkling wine and makeup

US tech companies say such laws force them to pay double tax. They say modernisation of tax rules should be an international effort, but those negotiations remain slow-going.

The French government, which announced its law after an EU-wide proposal stalled, has said the tax will end if a similar measure is agreed internationally.

Over the summer, President Donald Trump threatened to tax French wine over the issue – a plan that the French agriculture minister dismissed as “completely moronic”.

But some US business lobby groups had warned against tariffs because of fears of escalating another trade fight, despite their opposition to the French law.

The US Chamber of Commerce, for example, said tariffs “may elicit additional rounds of retaliatory measures that represent a substantial risk to US economic growth and job creation”.

This expected retaliation from the US could make troubling reading for the UK party leaders.

Labour Party leader Jeremy Corbyn’s flagship election pledge – to privatise the UK’s broadband network – was to be funded, at least in part, by a tax on “multinationals”. In the party’s press release about the plans last month, “Amazon, Facebook and Google” were mentioned specifically.

Prime Minister Boris Johnson has also backed the idea, calling out the so-called “FAANG” stocks – Facebook, Apple, Amazon, Netflix and Google – as paying “virtually nothing”. The Tory manifesto pledges its own Digital Services Tax to fund improvements in broadband infrastructure, among other things.

Both leaders are capitalising on the growing momentum in Europe to tax tech firms based on their sales in a country – rather than profits, which are often funnelled through counties with a lower tax rate, such as Ireland.

But while promising a “Google tax” sounds great on the campaign trail, it only strengthens the view in Washington that American success stories are being unfairly targeted. And the move today suggests the US is ready to start fighting back.

Here’s what might happen next: France has said it would drop its digital tax if Europe could, as a bloc, come up with an alternative that’s consistent across the Union; a strength-in-numbers move that would be more difficult for the US to counteract. But the UK, post-Brexit, would be on its own – and needs to stay in Washington’s good graces.

Leave a Reply