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France will impose a digital tax. The US has threatened to retaliate

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French lawmakers on Thursday approved a bill that would impose a new tax on services provided by large internet companies despite the risk of a costly backla...

Posted: Jul 11, 2019 11:37 AM
Updated: Jul 11, 2019 1:16 PM

French lawmakers on Thursday approved a bill that would impose a new tax on services provided by large internet companies despite the risk of a costly backlash from the Trump administration.

The United States Trade Representative announced a so-called Section 301 investigation on Wednesday, warning that the tax could discriminate against American companies. The move means the United States could end up imposing retaliatory tariffs on French products.

'The United States is very concerned that the digital services tax ... unfairly targets American companies,' US Trade Representative Robert Lighthizer said.

The measure will take effect in January 2020, imposing a 3% tax on revenue earned by large internet companies in France, such as Amazon, Facebook and Google. It would apply to businesses with global revenue of more than €750 million ($845 million) and €25 million ($28 million) in France.

'The structure of the proposed new tax as well as statements by officials suggest that France is unfairly targeting the tax at certain US-based technology companies,' the US Trade Representative said.

Shortly after the bill was passed, French finance minister Bruno Le Maire responded to the threat of retaliation.

'There are other ways between allies to solve our differences, there is no need for threats,' Le Maire told reporters. 'We can solve our differences through negotiations and through discussions.'

French President Emmanuel Macron will now decide whether to sign the bill into law.

Several European countries including the United Kingdom are considering new taxes on digital companies as part of a race to better regulate the internet and capture more revenue from their activities.

The UK plan, announced in October, would apply a 2% levy on digital services sold by profitable companies with annual global revenue of at least £500 million ($627 million). It would be implemented in April 2020.

G20 finance ministers in June broadly supported a plan developed by the Organization for Economic Cooperation and Development to overhaul global corporate tax rules and address challenges in taxing digital companies.

But more work is needed on the proposal, which is designed with digital companies in mind but also has major implications for traditional multinational corporations.

The US Trade Representative urged countries to wait for 'a multilateral agreement to address the challenges to the international tax system posed by an increasingly digitized global economy.'

The investigation launched by the Trump administration is the same type that served as the basis for US tariffs on $250 billion worth of Chinese goods. That inquiry lasted seven months before President Donald Trump decided to move ahead with the first round of tariffs.

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