France’s goal is to achieve a global agreement on taxing digital services, finance minister Bruno Le Maire said on Tuesday, after the U.S. government decided to launch an investigation into the new tax on sales in the country by multinational firms like Google, Amazon, Facebook and Apple, which the French dub “les GAFAs”.
The French government has argued that such companies headquartered outside the country pay little or no tax and has argued that taxes should be based on digital, not physical presence. After objections to an EU wide levy from Ireland, the Czech Republic, Sweden and Finland, France announced its own tax on big technology firms last year,
The new tax was approved by the French senate on Thursday, a week after it was passed by the lower house, the National Assembly, but Le Maire said the tax will end if a similar measure is agreed internationally.
France’s new 3% tax will be based on sales made in the country, rather than on profits.
About 30 mostly U.S. companies such as Alphabet Inc.
and Microsoft Corp.
will need to pay it, but Chinese, German, Spanish and British firms are also affected. The big tech companies have argued they are complying with national and international tax laws.
Any digital company with revenue of more than €750m ($850m; £670m), of which at least €25m is generated in France, would be subject to the levy. It will be retroactively applied from early 2019, and is expected to raise about €400m this year.
The Trump administration denounced the move a day before the vote. On Wednesday U.S. Trade Representative Robert Lighthizer said an investigation under Section 301 of the Trade Act 1974 would “determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce”.
Section 301” investigations have been used by the U.S. before as a way of implementing new tariffs on countries the Trump administration believes are acting unfairly against American companies.
While noting that it was the first time in the history of the two countries’ relationship that a section 301 procedure was open against France, Le Maire reiterated that France’s goal was still to achieve a global agreement on the taxation of digital services within the OECD, currently being negotiated.
France’s position, a Le Maire adviser noted, “has always been that our own tax would then be replaced by the one set up by international agreement.”
The French Treasury official insisted that the government had taken all legal “advice and precaution” and argued that the tax affected several European companies also.
French officials this week mostly sounded eager this week to defuse the dispute with Washington, and pointed out that U.S. Treasury Secretary Steven Mnuchin is fully participating in the talks to devise an agreement on a global tax, which could happen by the end of next year.
“The U.S. is using a bargaining chip with section 301, but that means at least that they’re taking those talks seriously,” the Le Maire adviser said. He added that the tax France just voted on “is also a bargaining chip of its own,” meant to speed up the OECD negotiations as a warning of what could happen if every country goes its separate way.
But the new French tax also has a political purpose: it is meant to help Emmanuel Macron in his bid to convince the French that he is not just the president who “cut taxes on the rich,” as protesters in weekly and often violent street demonstrations were claiming last winter. And should a deal be clinched at the OECD, Macron hope to be able to claim victory for having pushed for the taxation of internet giants in the countries they do business in.
The U.S. official position is that a tax should be levied on profit, not sales, as Mnuchin said last October. And that it shouldn’t single out digital services companies per se. “We urge our partners to finish the OECD process with us,” the U.S. Treasury chief added.
France is chairing the G-7 — the gathering of the world’s major industrial powers — this year and Le Maire will head a preliminary meeting of finance ministers next week, before the summit due in August in Biarritz. As proposed by the French, the agenda will include a discussion on “minimum tax rules for companies wherever they are based, and how to “adapt international tax rules to the global economy’s digitization.”