The U.S. is so upset about France’s proposed tax on digital giants that it’s threatened to use the same tariff law against the European country that it’s deployed against China. But on Thursday French lawmakers approved the measure anyway.
France unveiled the tax in March, following the breakdown of attempts to form a united European Union front on the issue of huge tech multinationals, such as Facebook and Amazon, booking their profits in low-tax countries and therefore paying relatively little tax in the other EU countries where they operate.
Other EU countries are also pushing ahead with their own plans to tax tech giants such as Facebook and Amazon—the U.K. is expected to announce its plan for a 2% levy on large digital services firms’ local revenues later Thursday.
The French plan is for a 3% tax on revenues earned in France in the areas of targeted advertising and running a digital marketplace. It will be retroactively applied to the start of this year.
On Wednesday, the Trump administration opened an investigation into the plan under Section 301 of the 1974 Trade Act. This is the law that underpins the U.S. trade war against China. It allows the president to use tariffs as a weapon against a country’s trade practices if those policies harm U.S. companies. And that’s what might now happen in the case of France.
“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies,” said U.S. Trade Representative Robert Lighthizer in a statement. “The president has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”
Tech industry lobbyists applauded the opening of the probe, with the Computer & Communications Industry Association (CCIA)—whose members include the likes of Facebook, Amazon and Google—calling it “a critical step toward preventing protectionist taxes on global trade.”
But the French weren’t swayed.
“France is a sovereign state. It makes sovereign decisions on tax matters and will continue to make sovereign decisions on tax matters,” said French Finance Minister Bruno Le Maire in response to the U.S. move. “Between allies, we can and we must resolve our disputes without resorting to threats.”
Hours later, the French Senate green-lit the new tax.
The new French law, it should be noted, is not intended to be permanent. As is the case with the similar laws that other EU countries are pursuing, the idea is for the French tax to vanish once a global agreement on digital taxation finally appears.
The argument over the taxation of companies such as Facebook and Amazon is just the latest addition to a pile of trade disputes between the U.S. and Europe. The U.S. and EU are supposed to be starting talks over a free-trade agreement but they can’t agree on the basics of what would be within the deal’s scope—France is already against the agreement, because of U.S. opposition to mitigating the climate emergency. The U.S. has also hit the EU with metals tariffs, is threatening to impose tariffs against European cars, and could impose yet more tariffs—again, under Section 301 of the Trade Act—over subsidies for the planemaker Airbus.