French Senate approves tax as US opens digital tax investigation

PARIS (Reuters) – The French Senate on Thursday approved a tax on large tech companies, potentially opening a new front in a trade feud between Washington and the European Union.

President Donald Trump on Wednesday ordered an investigation into the tax, which could lead the United States to impose new tariffs or other trade restrictions.

“Between allies, we can and must resolve our differences not by threats but by other means,” Finance Minister Bruno Le Maire told senators before the final vote.

The 3% levy will apply to digital service revenues generated in France by companies with more than 25 million euros in revenue in France and 750 million euros ($ 845 million) worldwide. It should enter into force retroactively from the beginning of 2019.

France pushed the tax forward after EU countries failed to agree on a bloc-wide levy in the face of opposition from Ireland, Denmark, Sweden and Finland.

“France is a sovereign country, its decisions in fiscal matters are sovereign and will continue to be sovereign,” said Le Maire.

Other EU countries, including Austria, Britain, Spain and Italy, have also announced plans for their own digital taxes.

They say a tax is necessary because large multinational internet companies such as Facebook FB.O and Amazon AMZN.O are currently able to make profits in low-tax countries like Ireland regardless of the source of income. Political pressure to respond has increased as local retailers on shopping streets and online have been disadvantaged; French President Emmanuel Macron has said that taxing big tech more is a matter of social justice.

However, Irish Finance Minister Paschal Donohoe said in May that national taxes primarily targeting US-based digital businesses were “highly likely to exacerbate global trade tensions and hurt cross-border trade and investment.” , and make it more difficult to reach agreement on a global agreement. reform.

The French ASIC lobby representing companies like Facebook, Google, Amazon, Twitter and Airbnb warned of a wider impact.

“By attempting to unilaterally overtax American players, Bruno Le Maire has triggered a trade war that today penalizes French technology and tomorrow will penalize many sectors that make the success of the French economy, including wine, automotive and luxury, ”said ASIC President Giuseppe de Martino.

COMMERCIAL LINE

The digital tax spat is separate from the transatlantic trade line, but could be used by Trump to try to secure concessions from the EU on the trade front. The US and the EU have threatened to impose billions of dollars in tariffs on planes, tractors and food in a nearly 15-year dispute at the World Trade Organization over aircraft subsidies granted to the American manufacturer Boeing Co. TO PROHIBIT and its European rival, Airbus SE AIR.PA.

Trump has also imposed new tariffs on imports of steel and aluminum from the EU – and has threatened punitive tariffs on cars and auto parts if the two sides fail to reach a comprehensive trade deal.

Plans to launch trade talks between Washington and Brussels, however, have been hampered by US steel tariffs and the reluctance of EU states to include agricultural products in the negotiations.

The European Commission has estimated that multinational digital companies that invest in the EU are taxed on average 14 percentage points lower than other companies.

“We are just restoring tax justice. We want to create fair and efficient taxation for the 21st century, ”Le Maire told senators.

FILE PHOTO: French Economy and Finance Minister Bruno Le Maire delivers a speech at a high-level debt forum at the Ministry of Finance in Paris, France, May 7, 2019. REUTERS / Benoit Tessier / File Photo

“We want to impose on these new economic models the same rules that apply to all other economic activities.

Paris has pledged to lower its tax as soon as an international agreement is reached within the Organization for Economic Co-operation and Development on the overhaul of cross-border tax rules in the digital age. This is expected by the end of 2020.

The French government says the tax does not target American businesses and will affect European and Asian businesses as well.

The legislation is expected to be enacted within 21 days, a Senate spokeswoman said, unless the government or lawmakers request a final review by the Constitutional Council.

However, this is unlikely as the bill has found broad support among senators, although some have expressed concern about double taxation as corporate tax is based on profits and digital tax. is based on income.

(Corrects a typo in the 12th paragraph)

Additional reporting by Myriam Rivet, Elizabeth Pineau, Mathieu Rosemain and Francesco Guarascio; reporting and writing by Leigh Thomas; edited by Richard Lough, Kevin Liffey and Alexander Smith


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