Trump orders French digital tax probe, amid talk of retaliatory tariffs

US President Donald J. Trump makes remarks at an event to overhaul the nation's organ transplants and kidney dialysis systems at the Ronald Reagan Building in Washington, DC, USA, 10 July 2019. [EPA-EFE/KEVIN DIETSCH]

US President Donald Trump has ordered an investigation into France’s digital tax plans, which may result in retaliatory tariffs or trade restrictions, should the outcome of the probe identify unfair or discriminatory practices.

The announcement is seen as a warning from US authorities ahead of a vote on the measures in the French Parliament, set to take place today (11 July).

Widely expected to pass, the plans would see a levy imposed on any digital company with revenues of more than €750 million, of which €25m would need to be generated in France.

The tax rate would be set at 3% and could hit some of America’s biggest tech companies, including Amazon, Facebook and Google. Earlier this year, French Economy Minister Bruno Le Maire said the levy could raise up to €500 million a year.

France set to introduce new tax on internet giants

France will introduce a bill Wednesday (6 February) to tax internet and technology giants on their digital sales, and thus curb efforts to pay global levies in countries with lower tax rates.

On announcing the investigation, US Trade Representative Robert Lighthizer said: “The United States is very concerned that the digital services tax which is expected to pass the French Senate…unfairly targets American companies.”

The US 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,” he added.

Under the probe, the US has up to a year to deduce whether France’s moves in the field of digital tax amount to an unfair trade policy. On Wednesday, the investigation received the approval of Republican Senate Finance Committee Chairman Chuck Grassley and Senator Ron Wyden, the senior Democrat on the panel.

In a joint statement, they said: “The digital services tax that France and other European countries are pursuing is clearly protectionist and unfairly targets American companies in a way that will cost US jobs and harm American workers.”

Grassley and Wyden added that France’s unilateral measures were the wrong way to go. Countries should rather “focus their energies on the multilateral process,” they added in reference to international talks on a digital tax currently taking place at OECD level.

Moreover, the tech giants themselves adopted a supportive stance for the US investigation, with Amazon issuing a statement saying that they “applaud the Trump Administration for taking decisive action against France and for signalling to all of America’s trading partners that the US government will not acquiesce to tax and trade policies that discriminate against American businesses.”

EU digital tax is 'discriminatory', US says

US authorities have criticised the EU’s plans to introduce a ‘digital tax,’ describing the measures as ‘discriminatory’ in a letter penned to European Council president Donald Tusk and Commission President Jean-Claude Juncker, at the close of last week’s EU summit.

The US administration took a strong stance last year against the EU’s own digital tax plans, calling European proposals to tax tech giants discriminatory “against US companies.”

The EU proposals to introduce a digital services tax were, in the end, held back earlier this year by a group of countries including Ireland, Sweden, Finland and Denmark.

The proposals were eventually put to bed, prompting some countries to go their own way. The UK, Spain, Austria, and France all consequently announced plans to introduce a new levy on digital giants.

Despite resistance from member states, the digital tax plans could however return at EU level. “We are becoming an increasingly digital world,” said  Margrethe Vestager, the EU’s antitrust Commissioner who is set to serve a second term at the Commission. “And it will be a huge problem if we do not find a way to raise (digital) taxes,” she told French radio in April.

In addition, although the European Parliament only plays a consultative role in tax affairs, pressure from the EU’s directly elected chamber could hold influence during the next mandate.

In a non-binding vote last year, the Parliament supported applying a 5% tax rate on digital companies. By an overwhelming majority, MEPs also voted to include online streaming services under the scope of the plans.

MEPs back digital tax plans by overwhelming majority

MEPs in the European Parliament have signalled their support in clear and uncertain terms for the taxation of digital services, during a vote in Thursday’s plenary session (13 December) in Strasbourg.

[Edited by Frédéric Simon]

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