U.S.-France tax truce is a respite in tense relations with EU

France will delay its tax on big tech firms such as Google and Facebook in exchange for the United States’ promise to hold off retaliatory tariffs — a potential sign of goodwill in the U.S. and European Union’s increasingly tense relations over trade.

After President Donald Trump threatened the EU with bigger tariffs, French Finance Minister Bruno Le Maire said Wednesday he had negotiated a truce with U.S. Treasury chief Steven Mnuchin on the sidelines of the World Economic Forum in the Swiss Alps.

Le Maire said France would delay collection of the digital tax until December — parking the issue until after the next U.S. presidential election, where Trump hopes to secure another four-year term.

The 3% tax on the revenues of big internet companies came into force only last July and prompted outrage in the U.S., which launched retaliatory tariffs against French wine, cheese and other products.

The two countries eventually agreed one month later to try to create an international agreement on how to tax digital business by mid2020, but neither side would back off its punitive taxes. They agreed Wednesday in Davos to do that.

Le Maire, Mnuchin and the head of the Paris-based Organization

for Economic Cooperation and Development, José Ángel Gurría, will meet Thursday to work on an international approach to taxes on digital companies.

“I absolutely expect we will come to a solution, because there is no Plan B,” Gurría said earlier in Davos.

It remains unclear whether they can find an international agreement, because it would involve dozens of countries with often conflicting views.

The French measure is an attempt to get around tax avoidance measures by multinationals, which pay most of their taxes in the EU country they are based in — often at very low rates. That effectively means the companies pay next to no tax in countries where they have large operations.

“Digital companies will pay their fair tax in 2020,” Le Maire told reporters in Davos.

At face value, the deal appears to dial down the risk of a wider trade war between the U.S. and the EU, of which France is a member.

But Trump took a noticeably tough line on the EU that stoked concerns that the months ahead could see a new escalation in trade tension.

“They have trade barriers where you can’t trade,” Trump said at a press briefing at the conclusion of his two-day stay in Davos. “They have tariffs all over the place. They make it impossible. They are, frankly, more difficult to do business with than China.”