On 11 July, the French parliament passed a 3 percent digital services tax on multinational tech companies' sales generated in France. The so-called GAFA tax – an acronym for Google, Apple, Facebook, and Amazon – unveiled by French Finance Minister Bruno Le Maire in March 2019 has targeted 30 companies, most of them originating in the US.
The Trump administration denounced the move a day before the vote, presuming that it was unfairly targeting certain US tech companies: "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," US Trade Representative Robert Lighthizer announced on 10 July.
"I think it's a shot across the bows", says Daniel Ives, managing director of ,equity research at Wedbush Securities in New York, commenting on the implementation of France's GAFA tax. "And I think it definitely could add some tension between the two countries especially on a digital tax and a focus on US tax companies. It comes at a sensitive time especially with the US-China battle that's been under way on trade prospects."
According to Ives, it remains to be seen what exact retaliatory measures would be taken by the Trump administration in response to France's move. The financial expert highlighted that Washington "does not sit by idly", referring to the investigation under Section 301 of the Trade Act of 1974 of the Digital Services Tax (DST) kicked off by the United States Trade Representative (USTR) on 10 July to inquire and respond to France's new tax.
Previously, the Trump administration used inquiries under "Section 301" to accuse other countries of unfair trade practices and implement new tariffs against them.
Nevertheless, Ives does not expect that it will "morph into something bigger" in terms of US sanctions. According to him, it will lead to a mere tit-for-tat situation. At the same time, the financial expert opined that in general Trump's tariff tactics had proven effective insofar as they ‘d managed to bring Beijing to the negotiating table.
Ebong Eka, a certified public accountant, international bestselling author and tax expert based in Washington, DC, holds a more pessimistic stance: he believes that France's action may lead to nothing short of a "digital trade war" between Paris and Washington.
"The US administration investigating the legislative and economic impact of a tax on mainly US-based tech firms is not only expected but warranted," Eka said. "The US' fear is that a tax on tech firms singles-out US tech companies and not firms of other countries. Google, Facebook, etc. are firms that originated in the US. The digital service tax of 3 percent by France is in effect a tariff on digital services from US tech firms... which not only include Facebook and Google but other firms that may operate SAAS (software as a service) products."
Following the announcement of the US "Section 301" investigation, French Finance Minister Bruno Le Maire stated Thursday that France was "a sovereign country", and its decisions on tax matters "[were] sovereign and [would] continue to be sovereign".
"I want to tell our American friends that this should be an incentive for them to accelerate even more our work to find an agreement on the international taxation of digital services," Le Maire highlighted.
The decision to levy additional taxes on tech giants was first announced by the French finance minister in December 2018 following the EU’s failure to tax the large internet companies with global revenues above 750 million euros per year.
The European Commission's 3-percent tax proposal that was put forward in 2018 was opposed by a number of countries including Ireland, the Czech Republic, Sweden and Finland. The EU tax legislation needs to be approved by all the bloc's members to become a law.
France has become the first European country to put the EC idea into motion. The measure would apply to tech companies that generate at least 750 million euros on their digital services worldwide with 25 million euros being earned in France.
The French Finance Ministry expects that the measure will help the country collect 500 million euros in taxes in 2019. However, the French government elaborated that the tax would be axed in case a similar common measure is agreed upon internationally.
As The Guardian noted on 11 July, the British Treasury is currently considering a draft finance bill seeking to implement a similar 2 percent tax on the revenues of search engines, social media platforms and online marketplaces operating in the UK. The measure would be applied to tech companies with global revenues over £500 million (556.63 million euros) including at least £25 million (27.83 million euros) from the UK.
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