France tech tax targets Facebook, Google and others despite US trade threat

Bill passed to impose a 3 per cent levy on global tech companies with at least €750 million in worldwide revenue

France's finance minister Bruno Le Maire is planning an investment fund for aerospace firms. Reuters

France won’t back off from its planned tax on companies like Facebook and Alphabet’s Google even after the US suggested it may use trade tools against the levy.

The French Senate passed a bill on Thursday to impose a 3 per cent levy on global tech companies with at least €750 million (Dh3.1 billion) in worldwide revenue and digital sales totaling €25m in France. The US said on Wednesday that it will examine whether the tax would hurt its tech firms, using the so-called 301 investigation, the same tool President Donald Trump deployed to impose tariffs on Chinese goods because of the country’s alleged theft of intellectual property.

France said the digital tax is in keeping with international rules, and that it won’t accept the use of trade tools to try to thwart it.

“I deeply believe that between allies we can and must resolve our differences in ways other than with threats,” finance minister Bruno Le Maire said in a speech in the Senate. “France is a sovereign state that decides its tax measures with sovereignty and will continue to take sovereign tax decisions.”

With the passage of the bill, France will become the first country in the European Union to impose such a levy, with other nations, including the UK and Germany, mulling similar taxes. A broad, EU-wide digital tax failed to garner a consensus in the 28-nation bloc this year, with France among the biggest advocates for a region-wide tax on tech companies’ revenue from digital advertising, user data sales and the like - the so-called GAFA tax (after Google, Apple, Facebook and Amazon ).

The law, which goes into effect retroactively as January 1, 2019, targets about 30 companies around the world. While most of them would be American, the list would also include Chinese, German, UK and even French firms. It would affect companies that profit from providing digital services to French users.

President Emmanuel Macron has two weeks to sign off or seek changes to the law. French presidents rarely seek changes once they are passed by parliament. It has only happened three times in the last 40 years.

Le Maire said he spoke to US Treasury secretary Steven Mnuchin Wednesday, and noted that it’s the first time in the history of relations between the two countries that Washington has opened a 301 investigation against France.

The passage of the tax bill and the US investigation threaten to further strain trans-Atlantic ties as the two sides prepare to negotiate a limited trade agreement on industrial goods. The French government has in the past asked the US to work with Europe at the OECD for a “fair digital tax".

The US said its Trade Representative Robert Lighthizer will have as long as a year to examine whether the plan would hurt US technology firms, and suggest remedies.

The US is concerned that the tax “unfairly targets American companies”, Mr Lighthizer said in a statement announcing the action on Wednesday. “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.”

The US can levy tariffs specifically on products from France even though it is a member of the EU, said Douglas Heffner, a international trade litigator at law firm Drinker Biddle & Reath. Under Section 301 of the Trade Act of 1974, the president has authority to impose tariffs or take other restrictive measures if it’s determined that a foreign country’s trading rules are damaging to US businesses.

“The U.S. can be very creative,” Mr Heffner said. “They don’t have to just go after digital products. They can go after products where they have leverage.”

The move would come as talks on a limited trans-Atlantic trade agreement on industrial goods have progressed slowly because the US and EU are at odds over whether to include agriculture in any final agreement. France is the country most adamantly opposed to making any agriculture concessions. Mr Trump’s threat to impose a tariff of as much as 25 per cent on European car exports has cast a cloud over the negotiations as well.

Finance ministers and central bankers at a G7 meeting in Chantilly, France, next week will discuss international taxation and competition and the digital economy.