Mnuchin, Le Maire seek tax compromise to ease trade tensions

France and the U.S. will seek a compromise on the taxation of digital services over the next two weeks in an effort to avoid an escalation in the transatlantic trade dispute.

“I had a long discussion with U.S. Treasury Secretary Steven Mnuchin [pictured] yesterday,” French Finance Minister Bruno Le Maire told reporters in Paris on Tuesday. “We agreed to redouble our efforts in the coming days to try to find a compromise on digital taxation in the framework” of the Organization for Economic Cooperation and Development, he said, adding that they had given themselves 15 days to strike a deal.

Without a resolution, the dispute threatens to open up a new front in the Trump administration’s effort to rebalance global trade toward America’s advantage and use tariffs as negotiating leverage. Its trade war now is mostly targeted at Chinese imports.

Last month, the U.S. said it would hit $2.4 billion of French products with tariffs in response to a 3 percent tax France instituted on the revenue of large tech companies including Google, Apple Inc., Facebook Inc. and Amazon.com Inc. The office of the U.S. Trade Representative said the levy “discriminates against U.S. companies” and the European Union has vowed to retaliate if the U.S. followed through.

Le Maire said that he would pull out of negotiations if the Trump administration imposed the sanctions while talks were ongoing. The U.S. tariffs will target goods including sparkling wine, cheese and makeup.

Public hearing

Standing alongside Le Maire, the EU’s trade chief Phil Hogan said he is very concerned about the tariff threat because France’s digital tax is “legitimate.” The EU would consider “all possibilities” if Washington goes ahead, he said.

Representatives for French products, including Le Creuset cookware and champagne producer Laurent-Perrier, plead their case at the U.S. Trade Representative on Tuesday. The tariffs could go into effect as soon as early this year.

The tariffs would be “completely devastating,” Jeff Zacharia, a representative for the National Association of Wine Retailers said Tuesday. He said that many wine shops have profit margins of approximately 2.7 percent, meaning that they wouldn’t be able to absorb the duties and would likely have to reduce staff.

The OECD is hoping to reach a consensus among more than 130 countries this year about how global digital companies should be taxed. France has said it will repeal its tax and refund the tax payments if an international agreement is reached. U.S. officials have called that unacceptable and says the tax should be rescinded immediately.

Despite opposition from importers and sellers of French products, the technology sector is encouraging the Trump administration to proceed with the tariffs, an unusual position for an industry that typically supports free trade.

“The financial effect of this is transfer of tax dollars from U.S. Treasury to the French treasury,” Gary Sprague, a law partner at Baker McKenzie representing tech firms, including Airbnb Inc., Amazon and Microsoft Corp., said at Tuesday’s hearings. These revenues aren’t subject to French taxes under existing treaties, he said.

The U.S. has also said it would consider investigating digital taxes in other countries that have followed France’s lead — including Austria, Italy and Turkey. That could result in sanctions on products from those countries.

— William Horobin and Laura Davison, with assistance from Peter Flanagan and Saleha Mohsin

Bloomberg News