July 12, 2019

Anna Murray 

France has hit back right after US President Donald Trump ordered on July 10 an investigation into a new French tax on major technology firms. The French Senate passed a digital law on July 11 that would impose a 3% levy on the total annual revenues of 30 technology firms, mostly American including Google, Apple, Facebook, and Amazon (Gafa), but also British, Chinese, German, and Spanish ones, in providing services to French consumers, as well as one French firm and several with French origins that have been bought by foreign companies. The new tax which the French Finance Minister, Bruno Le Maire, estimated earlier at least €750m (£675m) in annual revenues and Gafa alone would yield €500m (£450m) per year.

Similarly, the UK will come into effect on April 2020 a digital service tax of 2% on the revenues of online marketplaces, search engines, and social media platforms serving UK customers. The tax would be applied to those firms with global annual revenues in excess of £500m (€555.5m) and UK revenue of at least £25m (€27.8m) per year. The UK chancellor, Philip Hammond, said a UK digital service tax would raise £400m (€444.4m) a year.

Le Maire said he was warned about the investigation during his conversation with the US Treasury Secretary, Steven Mnuchin. Meanwhile, Le Maire told French senators on July 11, “I believe we can and must resolve our differences with allies in another way than through threats.” “We are merely re-establishing fiscal justice. We want to create taxation for the 21st century that is fair and efficient,” he added. France has pledged to drop the tax as soon as a multilateral agreement on cross-border digital taxation to be reached at the Organization for Economic Co-operation and Development.

Once the Office of the US Trade Representative completes its investigation, it will determine what action ought to be taken to hit back on France. The Trump administration will most likely retaliate against France’s new digital tax by unleashing steep tariffs on key French products such as cheese, perfume, or wine, according to trade experts. However, the Paris-Washington digital tax spat is separate from a long-running transatlantic trade row between the US and EU, it remains to be seen whether President Trump will reach a deal to avoid a widening trade war.

Photo:Webshot.