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US mulls retaliation to French tech tax

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US mulls retaliation to French tech tax

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US Trade Representative Robert Lighthizer said President Trump ordered the investigation

The US is preparing $ 2.4 billion tariffs on French exports in retaliation for the nation's new digital services tax.

The top US trade official said the new tax, which France approved in July, unfairly targets American technology giants.

He said potential tariffs are intended to prevent other countries from taking similar measures.

Items that may face tariffs rates up to 100% include cheese, sparkling wine, makeup and bags.

The ruling "sends a clear signal that the United States will take action against digital tax regimes that discriminate or impose undue burdens on US companies," said Robert Lighthizer, US Trade Representative (USTR).

& # 39; Increasing Protectionism & # 39;

Lighthizer announced potential tariffs, which will now enter a public comment period, at the end of his office's investigation into the French tax.

He found that the law – which taxes turnover rather than profit – was inconsistent with international tax rules and "unusually burdensome" for US technology companies.

Lighthizer said the US is exploring initial investigations into similar laws in Austria, Italy and Turkey. The United Kingdom has also taken steps towards a technology tax.

"The USTR is focused on countering the growing protectionism of EU member states, which unfairly affects US businesses, whether through digital services taxes or other efforts directed at the top US digital services companies," he said.

France has long argued that taxes should be based on digital activity, not just where companies are based.

Its new law imposes a 3% tax on sales of certain digital services that take place within its borders. This applies to any digital company with revenues in excess of € 750 million ($ 850 million; £ 670 million) – of which at least € 25 million is generated in France.

The tax will take effect retroactively from early 2019 and is expected to raise about € 400 million this year.

About 30 companies are expected to pay, mostly US companies like Alphabet, Apple, Facebook, Amazon and Microsoft.

Amazon has already responded by raising rates for French companies by 3%.

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The US is considering tariffs on cheese, sparkling wine and makeup.

US tech companies say these laws force them to pay double the tax. They say the modernization of tax rules should be an international effort, but these negotiations remain slow.

The French government, which announced its law following the suspension of an EU-wide proposal, said the tax would end if a similar measure was agreed internationally.

During the summer, President Donald Trump threatened to tax French wine on the issue – a plan that French agriculture minister dismissed as "utter idiot".

But some US business lobby groups have warned against tariffs for fear of escalating another business fight, despite opposition to French law.

The US Chamber of Commerce, for example, said tariffs "could trigger additional rounds of retaliation that pose a substantial risk to US economic growth and job creation."

This expected US retaliation could make reading worrying for party leaders in the UK.

Labor Party leader Jeremy Corbyn's promise to elect to privatize the UK broadband network would be funded, at least in part, by a "multinational" tax. In the party's press release about last month's plans, "Amazon, Facebook and Google" were specifically mentioned.

Prime Minister Boris Johnson also supported the idea, calling the actions called "FAANG" – Facebook, Apple, Amazon, Netflix and Google – as paying "practically nothing". The Tory manifesto promises its own digital services tax to fund broadband infrastructure improvements, among other things.

Both leaders are capitalizing on the growing push in Europe to tax technology companies based on their sales in one country – rather than profits, which are often channeled by lower-tax counties, such as Ireland.

But while promising a "Google tax" sounds great in the campaign, it only strengthens Washington's view that American success stories are being unfairly directed. And the change today suggests that the US is ready to start reacting.

Here's what might happen next: France said it would reduce its digital tax if Europe could, as a bloc, find a consistent alternative across the Union; a force movement in numbers that would be harder for the US to fight. But the post-Brexit UK would be alone – and must remain in Washington's good graces.

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