France to apply 'digital tax' despite US threat of retaliation

Move risks escalating fight over share of taxes paid by US tech giants in EU countries

A French ministry official said companies subject to the tax, including Google, Amazon, Facebook and Apple, have been notified. PHOTOS: AFP, REUTERS

PARIS • France will require online technology giants to pay a new "digital tax" on their 2020 earnings, the Finance Ministry said yesterday, despite the United States warning that it could retaliate with new tariffs on French imports.

"The companies subject to this tax have been notified," a ministry official said, referring in particular to the American firms Google, Amazon, Facebook and Apple, which the US says are being unfairly targeted by the levy.

The French move risks escalating a long-running fight over how to make US tech multinationals pay a larger share of their taxes in the countries where they operate.

Under European Union law, US companies can declare their profits from across the bloc in a single member state - in most cases low-tax jurisdictions such as Ireland or the Netherlands.

Under pressure to take a harder line, France enacted its digital tax last year, which calls for a 3 per cent levy on profits from providing online sales for third-party retailers, as well as on digital advertising and the sale of private data.

But Paris reached a deal with the administration of US President Donald Trump to suspend the tax while seeking a global digital tax deal under the auspices of the Organisation for Economic Cooperation and Development (OECD).

Mr Trump has threatened punitive duties of 25 per cent on US$1.3 billion (S$1.75 billion) worth of French products, including the country's renowned cosmetics and handbags.

Last month, the OECD acknowledged that it would not reach a deal on a new global standard for taxing digital firms this year as it had hoped, largely because of US opposition to the proposals.

The OECD had earlier negotiated the first major rewriting of tax rules in more than a generation.

But the fallout from the coronavirus pandemic has also left finance ministries most focused on saving their economies.

Europe has long pushed to make hugely profitable large tech companies doing business over the Internet pay tax where they sell their services, rather than in tax havens deliberately chosen under what is called "aggressive tax optimisation".


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A version of this article appeared in the print edition of The Straits Times on November 26, 2020, with the headline France to apply 'digital tax' despite US threat of retaliation. Subscribe