SPAT after SPAT

France approves tax on big tech firms as Trump orders probe

PHOTO: EPA-EFE
PHOTO: EPA-EFE

Since US President Donald Trump took office, he has torn up the diplomatic rulebook and upended standing alliances. Britain, the United States' most enduring partner, is caught up in Washington's spat with Iran, and its ambassador in Washington resigned following disparaging comments from Mr Trump. Long-time ally France has passed new laws that would tax technology giants, and Mr Trump has threatened to retaliate with tariffs. Meanwhile, Washington and Beijing are still locked in a bruising trade and technology war which shows little sign of abating, and other issues involving Taiwan and Hong Kong have also cropped up.

PARIS • The French Senate gave final approval to a tax on big technology companies yesterday, potentially opening up a new front in a trade row between Washington and the European Union (EU).

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

"Between allies, we can and should solve our disputes not by threats but through other ways," Finance Minister Bruno Le Maire told senators before the final vote.

The 3 per cent levy will apply to revenue from digital services earned in France by companies with more than €25 million (S$38 million) in French revenue and €750 million worldwide. It is due to kick in retroactively from the start of this year.

France pushed ahead with the tax after EU countries failed to agree on a levy valid across the bloc in the face of opposition from Ireland, Denmark, Sweden and Finland.

"France is a sovereign country, its decisions on tax matters are sovereign and will continue to be sovereign," Mr Le Maire said.

Other EU countries, including Austria, Britain, Spain and Italy, have also announced plans for their own digital taxes. They say a levy is needed because big, multinational Internet companies such as Facebook and Amazon are currently able to book profits in low-tax countries like Ireland, no matter where the revenue originates.

 
 
 
 

Political pressure to respond has been growing as local retailers in high streets and online have been disadvantaged. French President Emmanuel Macron has said that taxing big tech more heavily is an issue of social justice.

However, Irish Finance Minister Paschal Donohoe said in May that national taxes targeting mostly US-based digital firms were "highly likely to exacerbate global trade tensions and damage cross-border trade and investment", and would make it harder to reach agreement on global reform.

The ASIC French lobby, representing companies such as 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 penalises French technology today and will penalise tomorrow many sectors that make the French economy successful, including wine, automobiles and luxury," ASIC president Giuseppe de Martino said.

The digital tax spat is separate from the transatlantic trade row, but could be used by Mr Trump to try to obtain EU concessions on the trade front.

The United States and the EU have threatened to impose billions of dollars of tit-for-tat tariffs on planes, tractors and food in a nearly 15-year dispute at the World Trade Organisation over aircraft subsidies given to American aircraft maker Boeing and its European rival Airbus.

Mr Trump has also imposed new tariffs on imports of EU steel and aluminium, and has threatened punitive duties on cars and auto parts if the two sides fail to reach an overall trade deal.

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

The European Commission has estimated that multinational digital companies with investments in the EU are on average taxed at a rate 14 percentage points below that of other firms.

"We are merely re-establishing fiscal justice. We want to create taxation for the 21st century that is fair and efficient," Mr Le Maire told senators. "We want to impose on these new business models the same rules that apply to all other economic activities."

Paris has pledged to drop its tax as soon as an international accord is reached at the Organisation for Economic Cooperation and Development on overhauling cross-border tax rules for the digital era. This is expected by the end of next year.

The French government says the tax does not target US companies and will affect European and Asian firms as well.

The legislation should be enacted within 21 days, a spokesman for the Senate said, unless the government or lawmakers ask for a final review by the Constitutional Council.

A version of this article appeared in the print edition of The Straits Times on July 12, 2019, with the headline 'France approves tax on big tech firms as Trump orders probe'. Print Edition | Subscribe