11 Jul 2019

French digital tax 'unfairly targets American companies'

9:51 pm on 11 July 2019

US President Donald Trump has ordered an investigation into France's planned tax on tech giants - a move that could result in retaliatory tariffs.

Facebook, Apple, Amazon and Alphabet - the parent company of Google - are standing against a proposed Australian law allowing access to private data.

Photo: 123rf/ AFP

"The United States is very concerned that the digital services tax... unfairly targets American companies," the US trade representative said.

The French parliament is expected to approve the new tax on Thursday.

It will target firms such as Google and Facebook with a 3 percent levy on revenue made inside France.

The tax is expected to raise about €400m ($NZ676.5) this year.

Any digital company with revenue of more than €750m ($NZ1.27b) - of which at least €25m ($NZ42.3m) is generated in France - would be subject to the tax.

In New Zealand, the government is seeking public input on a similar plan to impose a 3 percent digital services tax on the likes of Facebook and Google.

Submissions on the discussion document for the New Zealand law close next Friday, 18 July.

What has the US said?

"[Mr Trump] 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 statement from trade representative Robert Lighthizer said.

The US inquiry could pave the way for punitive tariffs, which Mr Trump has imposed on several occasions since taking office.

Previous investigations launched by Washington have covered European Union and Chinese trade practices.

The latest inquiry was welcomed by Republican Senate Finance Committee Chairman Chuck Grassley and Senator Ron Wyden, the senior Democrat on the panel.

"The digital services tax that France and other European countries are pursuing is clearly protectionist and unfairly targets American companies in a way that will cost US jobs and harm American workers," they said in a joint statement.

Mr Lighthizer's office will hold hearings over several weeks before issuing a final report and making recommendations.

The technology industry lobby group ITI welcomed the investigation but cautioned against tariffs.

"We support the US government's efforts to investigate these complex trade issues but urge it to pursue the 301 investigation in a spirit of international co-operation and without using tariffs as a remedy," said Jennifer McCloskey, vice-president of policy.

What has France said?

The French government has argued that companies should not be able to escape paying tax if their headquarters are based elsewhere.

It announced its own tax on big technology firms last year after EU-wide efforts stalled.

The French initiative is a response to a growing public feeling that countries are losing out on billions in taxes because of the intangible and extra-territorial nature of the digital economy, BBC Paris Correspondent Hugh Schofield says.

Around 30 - mostly American companies - will pay the tax. Chinese, German, Spanish and British firms will also be affected.

Countries including France and the UK have accused firms of routing some profits through low-tax EU member states such as Ireland and Luxembourg.

The big US tech companies have argued they are complying with national and international tax laws.