France Inks Law to Tax Tech Firms, U.S. Threatens Probe

France’s Senate has approved taxing Amazon, Google and other large technology companies, despite the threat of a U.S. probe into discrimination. In fact, the vote came hours after U.S. trade representative Robert Lighthizer said he would investigate the French legislation based on the same law President Trump used in the trade clash with China. French finance minister Bruno Le Maire responded that, “France is a sovereign state. It makes sovereign decisions on tax matters and will continue to make sovereign decisions on tax matters.”

The Wall Street Journal reports Le Maire added that, “between allies, we can and we must resolve our disputes without resorting to threats.” France and the U.S. are partaking in “multilateral talks under the aegis of the Organization for Economic Cooperation and Development about how to overhaul the corporate taxation system for the digital age.”

European countries want Silicon Valley companies to allocate more of their profits to the territories in which they operate, but “the U.S. wants to avoid a patchwork of unilateral taxes and opposes measures that target digital companies in particular.” Le Maire has stated that France will repeal the new tax if a “credible agreement” is hammered out at the OECD.

The French tax, retroactive to the beginning of the year, applies a 3 percent tax on revenue earned in France “from such activities as undertaking targeted advertising or running a digital marketplace.” It applies to gross revenue rather than profits after expenses. The European Union had tried and failed to put out a united measure, which led to France taking its own steps.

The U.K. also just published draft legislation for a digital services tax beginning in 2020. “We’ve been clear that our strong preference is for a global/OECD solution,” said a U.K. Treasury spokesman. “Once an appropriate global solution is in place, we will no longer need our own digital services tax.”

The U.S. tech companies, meanwhile, support the Trump administration’s “pugnacious response.” Amazon stated that the administration took “decisive action against France and for signaling to all of America’s trading partners that the U.S. government will not acquiesce to tax and trade policies that discriminate against American businesses.”

The Information Technology Industry Council, which represents the tech companies, also opposed these tax proposals, although vice president of policy Jennifer McCloskey urged the U.S. to negotiate “in a spirit of international cooperation and without using tariffs as a remedy.” Facebook and Google have previously stated they “support multinational efforts to overhaul the corporate tax system.”

OECD senior tax official Pascal Saint-Amans said that he thought “the escalation of the dispute between the U.S. and France” might actually further “progress toward a global solution.” “That said,” he added, “this is an extraordinary complex project and it is hard to know how things will evolve.”

Related:
As Nations Look to Tax Tech Firms, U.S. Scrambles to Broker a Deal, The New York Times, 7/12/19