US retaliates over EU countries taxing its digital profits
The US has proposed tariffs on about $2.4bn in French products, but other European countries are also planning to levy a digital tax on US tech giants
Paris/Washington — The US has proposed tariffs on about $2.4bn in French products, in response to a tax on digital revenues that hits large US tech companies including Google, Apple, Facebook and Amazon.
“France’s digital services tax discriminates against US companies,” the office of the US trade representative said in a statement on Monday.
US trade representative (USTR) Robert Lighthizer said the agency is also exploring whether to open investigations into similar digital taxes by Austria, Italy and Turkey. The move comes hours after US President Donald Trump announced a barrage of other tariffs on steel and aluminium from Argentina and Brazil.
“The USTR’s decision today sends a clear signal that the US will take action against digital tax regimes that discriminate or otherwise impose undue burdens on US companies,” Lighthizer said in the statement. “The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies.”
The tariffs would be imposed after a public comment period ends in early 2020 and interested parties have a chance to weigh in on the proposed duties.
Wine and cheese
Monday’s report concludes more than four-month-long probe, known as a section 301 investigation, into France’s tax regime, which Lighthizer said in July “unfairly targets American companies”. The same law was used last year to examine China’s intellectual property (IP) practices that led to tariffs on more than $360bn in Chinese goods.
In August, Trump suggested tariffs of up to 100% on French wine and told aides that while he’s not generally empathetic with US tech companies, he believes it should be the US — not any other country — that taxes them, people familiar with internal deliberations said.
In the statement on Monday, USTR said the proposed action includes “additional duties of up to 100% on certain French products”.
Sparkling wine, cheeses, handbags and makeup are on the list of potential tariff targets, according to the notice. An official at the French finance ministry declined to comment and said finance minister Bruno le Maire would speak on the matter on Tuesday.
Trump and Macron
The US move is a setback for efforts to stop a conflict over digital tax from intensifying. Trump and France’s Emmanuel Macron agreed in August to try to find a compromise, but a 90-day deadline for talks expired last week without a resolution.
The US tariffs and the French tax are likely to be a priority during a meeting between Trump and Macron on Tuesday, on the sidelines of a Nato conference in London.
Macron argues that moving ahead with a tax on tech companies is necessary because the structure of the global economy has shifted to one based on data, rendering current systems archaic. His government is trying to use France’s national tax as a bargaining chip, saying it would withdraw it if there is agreement on an international solution — in talks under the stewardship of the Organisation for Economic Co-operation and Development (OECD).
There were signs of progress in recent weeks when the OECD proposed a “unified approach” to merge proposals that differed over whether to single out digital companies or have a broader approach. But Le Maire said, ahead of the USTR announcement, that the US has backed off from supporting an OECD compromise.
“They’ve said they aren’t sure they want a solution at the OECD,” Le Maire said on radio station France Inter. “We will never abandon our will to tax digital giants in a fair way.”
US Senators Chuck Grassley and Ron Wyden, the bipartisan duo leading the finance committee, called the French digital services tax “unreasonable, protectionist and discriminatory,’ in a statement. “We encourage other member states considering similar actions to work within the OECD framework toward a comprehensive solution.”
US lobby group the Internet Association, which represents tech companies, said France’s levy is “one of a growing number of concerning unilateral tax regimes around the world”, and advocated for a global solution in response to the announcement.
France’s tax, retroactive to January, affects companies with at least €750m in global revenue and digital sales of €25m in France. While most of the roughly 30 businesses affected are American, the list also includes Chinese, German, British and French companies.
The French government says it’s urgent to overhaul tax rules because the average tax rate for digital companies in the EU is only 9.5%, compared with 23.2% for other companies.
An attempt to agree on a Europe-wide tax fell through earlier this year when four countries — Sweden, Finland, Denmark and Ireland — declined to sign off on it. But Margrethe Vestager, currently the EU’s anti-trust chief, said last week the bloc would try to find unity again if there isn’t a global agreement.
Other European countries are also planning to levy a digital tax without waiting for the OECD. Italy’s government has said it will implement a tax on digital revenues on Januart 1, and Boris Johnson’s conservative party, which leads the polls in the UK election, has committed to a digital services tax.