French approve tax on digital services despite U.S. threat
PARIS — France adopted a pioneering tax on Internet companies like Google, Amazon and Facebook on Thursday, despite U.S. threats of new tariffs on French imports.
The measure, which the White House said could amount to an unfair trade practice, is likely to be signed into law by Macron within two weeks, placing France squarely in the cross hairs of President Donald Trump’s escalating trade wars.
Finance Minister Bruno Le Maire told the French Senate before the vote that U.S. Treasury Secretary Steve Mnuchin and Robert Lighthizer, the White House’s top trade negotiator, phoned him Wednesday to say that the United States was opening an investigation into the French tax using a mechanism Trump had already employed to impose sweeping tariffs on China.
It was the first time in the history of French-American relations that the United States had taken such a step, Le Maire said. “I believe that between allies we can and must sort out differences in other ways than by using threats,” he said.
“France is a sovereign nation that decides its own tax rules. And this will continue to be the case,” he added.
France has moved independently from the European Union to seek a tax on technology companies after
little progress was made to craft Europe-wide rules to tax the largest tech platforms. Macron accelerated the French tax plan earlier this year after waves of yellow-vest protesters forced his government to make billions of dollars worth of spending concessions that widened the country’s budget shortfall.
Le Maire described Thursday’s vote as a pivotal moment in which governments needed to stand up to digital behemoths that he said were becoming the equivalent of sovereign states, acting with virtual impunity as they maneuvered to keep their tax bills low across the world.
“We’re being confronted with the emergence of economic giants that are monopolistic and that not only want to control the maximum amount of data but also escape fair taxes,” he said. “It’s a question of justice.”
France is seeking a 3% tax on the revenue companies earn from providing digital services to French users. It would apply to digital businesses with annual global revenue of about $845 million and sales of $28 million in France. That would cover more than two dozen companies, many of them American, including Facebook, Google and Amazon.
The government expects to collect about $563 million. France’s General Assembly passed the bill last week.
In a statement Wednesday, Lighthizer that the United States was “very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies.”
“The president has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce,” Lighthizer said.
The European Commission last year proposed modernizing tax policies across the bloc as a way to keep pace with the digital economy, but countries have been unable to reach an agreement.
The Organization for Economic Cooperation and Development also is trying to hammer out a deal for taxing digital companies across countries, but the slow pace of the talks has frustrated European nations.
Le Maire said that if anything, the disarray underscored the need for the United States to step up to the plate to help formulate an accord on the international taxation of digital services. He urged Mnuchin to participate in accelerated talks at a meeting of finance ministers of the Group of 7 richest nations in Chantilly, France, next week.
Governments across Europe fear their tax base will fall as more commerce moves online because digital businesses are able to make use of subsidiaries in lowtax countries to avoid paying taxes elsewhere in Europe. The European Commission estimates digital companies pay an average effective tax rate of about 9.5%, compared with 23% for more traditional businesses.
“It’s totally unjust and ineffective,” Le Maire said. “How will we finance our environmental needs, our schools, day care centers, hospitals and colleges if we don’t tax them at the same level” as other goods or services, he added.
France’s digital tax adds to the growing list of actions European authorities have taken against the tech industry for anti-competitive business practices, unpaid taxes and lax privacy standards. And more regulation looms. Amazon and Facebook are facing antitrust inquiries from the European Commission.
France and Britain are considering new social media laws to stop the spread of hate speech and other harmful content. Ireland has several investigations open against Facebook and Google for violating European privacy laws.
The companies have taken advantage of old rules that allow profit to be booked based on where value is created. Without a brick-andmortar business that sells physical goods, digital services can funnel profits through low-tax countries.
In 2016, the European Commission ordered Apple to pay $14.5 billion in unpaid taxes to Ireland.