The United States has ordered an inquiry into a French tax that ’unfairly targets’ American tech companies.
Yesterday (11 July), the French government approved a 3pc tax on large tech companies’ local revenues, which is their total sales in France.
The tax will only apply to tech companies with global sales over €750m which make more than €25m per year in France as the French government argues that these companies pay little or no tax in the country.
Many global tech companies pay taxes in the countries where their headquarters are based, rather than where they generate sales. This causes problems for countries such as France and the UK, where huge sales are made but governments see very little of this money returned in tax. In 2017, Amazon’s profits in the UK tripled while the company halved its corporation tax bill.
According to French finance minister, Bruno Le Maire, only 30 companies will be hit by the new tax and the majority of them are US-based. While a number of these companies are British, Chinese and Indian, the only French company affected by the tax is advertising firm Criteo.
Paris-based tax lawyer Jessie Denton told BBC that this tax is more of a “symbol” than an effective tax measure, as it raises a relatively small sum of money. The French government said that this is a temporary measure that will be applied until the EU and wider world can reach an agreement on how to tax major tech companies more effectively.
The UK is considering introducing a similar 2pc tax which will apply to companies with revenues of £500m (€556m) and is expected to raise about £400m (€445m) per year. Austria and Spain are also currently considering similar digital tax plans.
Earlier this year, the European Commission outlined proposals for a 3pc tax on revenues of large internet companies with global revenues above €750m per year, but this move was met with the same criticism that met France’s decision from those who believe that this type of tax breaches international rules on equal treatment for companies around the world.
Among EU states, unanimous agreement is needed to launch a wide-ranging digital tax. There was general agreement from most states except for Ireland, Sweden and Denmark who opposed the tax.
The United States has been vocal about its disapproval of France’s decision to tax multinational tech giants, arguing that it “unfairly targets” American companies such as Amazon, Facebook, Apple, Microsoft and Alphabet.
The US administration ordered an inquiry the day before France’s vote, with trade representative Robert Lighthizer announcing that it was necessary in order to “determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”
This investigation could result in US tariffs on French goods, increasing transatlantic trade tensions. Lighthizer’s office will begin to assess the damage potentially inflicted on US tech groups due to this tax, using the legal framework the US implemented in its trade war with China.
Le Maire pointed out to the French senate that “France is a sovereign country, its decisions on tax matters are sovereign and will continue to be sovereign”. He also said, “Between allies, we can and should solve our disputes not by threats but through other ways.”
In Silicon Valley, US tech companies have responded as angrily as the US government, claiming that it could lead to double taxation.
One unnamed company affected by the tax told the Financial Times: “Given our business models it can be difficult to figure out where exactly we should pay tax. If we’re going to pay more tax in Europe, that’s fine, but then we should get a reduction in our US tax bills.”
This news comes about a week after French parliament began the process of introducing a law to fine Facebook and other social networks if they do not remove hate speech on the platform in a timely manner, following in the footsteps of Germany. French fines against social networks could be up to €1.25m.