US President Donald Trump’s administration threatened to impose duties on French imports after US officials concluded a tax on digital services imposed by Paris would be “unusually burdensome” for American technology companies.
The announcement came just hours before Trump is due to meet his French counterpart Emmanuel Macron on the sidelines of the NATO summit in London on Tuesday.
France's new digital tax
The French parliament earlier this year infuriated the administration of President Donald Trump by passing a law taxing digital giants like Google, Apple, Facebook and Amazon for revenues earned inside the country.
The proposed three percent tax on total annual revenues of companies that provide services to French consumers applies only to the largest tech companies, which are mostly US-based.
The tax will apply to about 30 companies with at least $28 million (25 million euros) in sales in France and $831 million worldwide.
The levy is due to kick in retroactively from the start of 2019 -something they have "never seen" before, according to Alan Lee of Facebook.
Of about 30 businesses affected, most are American, but the list also includes Chinese, German, British and even French firms.
On Monday, US Trade Representative Robert Lighthizer said Washington might impose tariffs of up to 100 percent on $2.4 billion in French goods like sparkling wine, yoghurt and Roquefort cheese in retaliation.
Trump said the European Union should "shape up, otherwise things are going to get very tough.''
"I'm not in love with those (tech) companies, but they're our companies,'' Trump said ahead of his meeting with Macron.
France's President Emmanuel Macron and his finance minister both warning of a European riposte if the US measure is implemented.
French Finance Minister Bruno Le Maire has vowed that Paris will only give up the digital tax if a global one being mulled by the Organisation for Economic Co-operation and Development replaces it.
"We were in contact yesterday with the European Union to ensure that if there are new American tariffs there will be a European response, a strong response," Le Maire told Radio Classique on Tuesday.
"This is not the sort of behaviour one expects from the United States with respect to one of its main allies, France, and to Europe in general," Le Maire said, while adding that he wanted to avoid a pattern of "sanctions and retaliation".
"We'll see where the discussions lead in the coming weeks, but it will involve a European response,'' Macron said in a meeting with Trump on the sidelines of a NATO summit in London. ``Because, in effect, it wouldn't be France that is being sanctioned or attacked but Europe.''
Macron said it's "not fair'' that digital revenues are taxed less than real-life revenues. He said France shouldn't be singled out for wanting to correct that imbalance with a tax on tech firms.
EU Commission spokesman Daniel Rosario said the EU will seek ``immediate discussions with the US on how to solve this issue amicably.''
Digital taxes wars aren’t new as, Apple Inc. was slapped with a 13 billion-euro bill for back taxes by the European Commission three years ago, as it sees that companies who sell online can easily avoid paying taxes in countries where they nevertheless make significant sales.
Apple’s fury at the EU’s 2016 order saw Chief Executive Officer Tim Cook blasting the EU move as “total political crap.”
The company’s legal challenge claims the EU wrongly targeted profits that should be taxed in the US and “retroactively changed the rules” on how global authorities calculate what’s owed to them.
The Commission has also probed Google’s Irish tax arrangements and ordered Amazon to pay 250 million euros in back taxes to Luxembourg. Other U.S. companies, including non-technology firms such as Starbucks Corp. and Nike Inc., have also been targeted in tax probes.
The EU insists that the common thread isn’t that they’re American but that they’ve used complex legal structures and intellectual property licensing to limit their tax payments.
Other countries may follow
Italy is enacting a similar tax starting first of January 2020 and Turkish government already proposed a digital tax of 7.5 percent.
UK have pledged to impose a 2 percent digital tax on the revenues of search engines, social media platforms and online marketplaces.
Austria, Spain and Belgium are also considering imposing digital taxes.