French defiance to Trump on digital tax casts shadow over G-7

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A French-U.S. clash over digital taxation overshadowed the start of a Group of Seven finance chiefs meeting as France refused to flinch on its levy that would hit tech giants from Facebook Inc. to Alphabet Inc.’s Google.

Just before an encounter with U.S. Treasury Secretary Steven Mnuchin at the G-7 near Paris, French Finance Minister Bruno Le Maire pledged to forge ahead with a 3 percent tax on digital revenues of large companies. France hopes its drive will pressure the U.S. to be more constructive in talks at the Organization for Economic Cooperation and Development to agree on a similar levy on profits in 129 countries.

“We will make every effort to get an agreement on digital tax here at the G-7 and open the path to a solution in 2020 at the OECD,” Le Maire told reporters. “It will be difficult, I know the U.S. position has toughened recently.”

Le Maire’s defiance is likely to meet with a chilly response from U.S. President Donald Trump’s administration. According to a report on Wednesday in Spanish newspaper El Mundo, the U.S. State Department has sent letters to embassies in several countries, including Spain, ordering them to alert governments that retaliation will follow if they go down the same path as France.

“A great number of countries are now taking this line — the U.K. has moved forward, Austria wants to do it,” Spanish Economy Minister Nadia Calvino said about the potential of digital taxation, speaking to Cadena Ser radio. “At the European level, practically all of us are in agreement.”

If France and the U.S. fail to resolve their differences in Chantilly, it could derail any effort to tax tech giants such as Inc.

“An agreement at the G-7 is decisive,” Le Maire said. “If we don’t get an agreement on the broad principles of digital taxation today and tomorrow, quite frankly it will be difficult to make an agreement between the 129 countries.”

Retaliation Threat

U.S. Trade Representative Robert Lighthizer already reacted last week to the French parliament’s approval of the tax by launching a probe to determine whether the measure is “discriminatory or unreasonable and burdens or restricts United States commerce.” The U.S. could ultimately impose retaliatory tariffs or other trade limits, or even use provisions in the tax code to punish French citizens and companies.

In the discussions for a global digital tax at the OECD, France has agreed to consider a U.S. approach that would target all businesses with a significant digital activity. But Le Maire said France still wants a global solution to take into account the advantages purely digital companies get from their giant networks.

“We have made clear step in the direction of our American friends,” Le Maire said. “Now I’m waiting for the same kind of step from the Trump administration and the U.S.”

Still, Le Maire claims he has a good working relationship with Mnuchin that will help the two sides find compromise.

“We are not far from a compromise, we just need one step further,” Le Maire said.

— With assistance from Rodrigo Orihuela, Helene Fouquet, Chiara Albanese, Saleha Mohsin, Jessica Shankleman and Toru Fujioka

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