France faces US backlash on 3% digital services tax

France is to introduce a 3% digital services tax, the first European country to do so, and now faces the risk of retaliation from the US, which argues that the levy unfairly targets multinational tech giants

The new tax has been approved by both the French senate and the National Assembly and is set to be enacted within 21 days. The French government has indicated it will drop the measure once the OECD reaches agreement on international plans for overhauling cross-border tax rules for the digital economy, although these are not expected until 2021.

The French tax will be applied retrospectively from early 2019. It applies to revenue from digital services earned in France by firms with more than €25m (£22.4m) in French revenue and €750m (£670m) worldwide. Estimates suggest it will raise €400m in its first year.

About 30 companies will pay the new tax, most of which are US tech giants such as Alphabet, Apple, Facebook, Amazon and Microsoft. Chinese, German, Spanish and British firms are also affected, as well as the French online advertising firm Criteo.

 The ASIC (Association des Services Internet Communautaire’s) which represents firms like Facebook, Google, Amazon, Twitter and Airbnb  has warned of the potential impact on the French economy.

It stated: ‘France appears to be relatively isolated on the international scene and that this measure risks undermining the attractiveness of France vis-à-vis international investors.’

Giuseppe de Martino, president of ASIC, said: ‘By wanting to overtax unilaterally American companies, Bruno Le Maire has triggered a trade war that penalises the French tech today and will penalise tomorrow many sectors that make the success of the French economy, including wine, cars, and luxury goods.’

The Trump administration has denounced the move and opened a ‘Section 301’ investigation into the digital services tax.

US trade representative Robert Lighthizer said an investigation would ‘determine whether it is discriminatory or unreasonable and burdens or restricts US commerce.’ Depending on the outcome of the inquiry, the US could introduce punitive tariffs on French products.

French Finance Minister Bruno Le Maire said France was ‘sovereign and decided its own tax rules’.

‘I want to tell our American friends that this should be an incentive for them to accelerate even more our work to find an agreement on the international taxation of digital services,’ he said.

This week the Treasury confirmed the UK is also going ahead with a 2% digital services tax from 1 April 2020, which is projected to raise £370m in the first year of operation, rising to £440m by 2022/23. This is a tax charge for the largest digital businesses - search engines, social media platforms and online marketplaces - with global revenues over £500m and UK revenues over £25m to reflect the revenue derived from their UK users.

Pat Sweet

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