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France risks US wrath with ‘digital tax’ on tech groups’ 2020 earnings

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France will require online technology giants to pay a new “digital tax” on their 2020 earnings, the finance ministry said Wednesday, breaking a truce with Washington over the long-running tax fight that could prompt a round of punitive US tariffs on French goods.

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

The French move to apply the tax – dubbed the GAFA tax (Google, Amazon, Facebook and Apple – risks escalating a long-running fight over how to make American tech multinationals pay a larger share of their taxes in the countries where they operate.

US President Donald Trump has assailed the tax as unfairly targeting the tech heavyweights, and last year threatened import duties of 25 percent on $1.3 billion worth of French products, including cosmetics and handbags by renowned brands.

France and other European countries are under intense public pressure to make US multinationals pay a larger share of their revenues in taxes in the countries where they operate.

Under EU law, companies in the United States can declare their profits from across the bloc in a single member state — and they mostly pick low-tax jurisdictions such as Ireland or the Netherlands.

In 2019, President Emmanuel Macron‘s government enacted a three percent levy on the profits from providing online sales for third-party retailers – such as Amazon’s Marketplace – as well as on digital advertising and the sale of private data.

That year the taxes brought in 350 million euros ($415 million), an amount expected to grow steadily in the coming years.

But Paris reached a deal with Trump’s administration last year to suspend collection of the tax while seeking a global digital tax deal under the auspices of the Organisation for Economic Co-operation and Development (OECD).

Progress on a deal was elusive, however, and in June, US Treasury Secretary Steven Mnuchin called off the talks, which were being pursued by 137 countries with a target by the end of this year.

In October, the OECD acknowledged that no deal was likely before next year, largely because of US opposition to the proposals.

Pandemic highlights ‘need for a solution’ 

Britain, Spain, Italy and other European countries have also announced digital taxes to give them a bigger share of the profits that tech firms make from their citizens.

The surge in sales for online retailers during the Covid-19 lockdowns across Europe this year has added to pressure on governments to take a tougher fiscal stance, not least to help pay for massive aid programmes for businesses forced to close.

But France has spearheaded the effort to wrest a compromise from Washington, and Wednesday’s announcement might reflect hopes in Paris that the incoming administration of Joe Biden will prove more amenable to a global deal.

“The Covid-19 pandemic makes the need for a solution even more compelling,” the OECD said last month.

It added that failure to reach a comprehensive deal would encourage more countries to take unilateral action that would only further stoke trade tensions.

The OECD plan on the table addresses two issues – how to tax firms in every country where they operate, and how to ensure that each country gets a fair portion of a multinational’s taxes.

An accord would likely set a minimum base tax, potentially of 12.5 percent, that would apply to every company no matter where it is based or declares its income.

The digital tax fight is just one front in the trans-Atlantic trade battle launched by Trump – last year his administration imposed 25 percent tariffs on a range of European delicacies in a battle over subsidies to planemaker Airbus.

The EU responded this month with its own round of tariffs on US imports after the World Trade Organisation faulted Washington over state aid for Boeing.

(FRANCE 24 with AFP)

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