Earlier this year, France1 passed a new law which would tax revenue from digital services provided by large tech companies.
The impact of this law will be felt most significantly by the major U.S. companies operating in that space, namely Amazon, Facebook, Apple, Walmart, Google and others. U.S. Commerce Secretary Wilbur Ross commented on CNBC that the digital tax stems from France’s envy of the U.S.’s stronghold on technological innovation on the global stage. The tax, a 3% levy on revenue from digital services earned by firms with more than $27.86 million in French revenue and $830 million worldwide, predominantly attacks American businesses. Revenue from digital services includes revenue generated from digital advertising, online intermediary activities (transactions on e-marketplaces, for example) and sale of user data.
Although French president Emmanuel Macron has stated the tax is not specifically aimed at U.S. tech companies, Ross insists that is a lie. Treasury Secretary Steve Mnuchin, in a letter to the Organization for Economic Cooperation and Development, wrote that the U.S. objects to the digital service tax because it has a “discriminatory impact on U.S.-based businesses.”
On Monday, December 2nd, 2019, the U.S. government officially responded to the digital services tax by announcing that it is considering imposing a series of new tariffs on French goods. The list of proposed tariffs covers a number of products, including cheeses, beauty products, handbags and champagne. The U.S. government said that the public will have until January to weigh in on the proposed measures. Still, the announcement had an immediate impact on French companies as French companies such as Hermes, Gucci (which owns French brand Kering) and Louis Vuitton saw their stock prices drop 2% in the days after the U.S. announcement.
In his letter, Mnuchin commented that the U.S. has concerns that the French digital tax will have serious repercussions on transfer pricing and taxable nexus standards, “longstanding pillars of the international tax system upon which the U.S. taxpayers rely.” In a separate letter addressed to Jose Angel Gurria, OECD Secretary-General, Mnuchin urged all countries to suspend unilateral digital service tax initiatives to allow the OECD more time to successfully implement multi-lateral agreements aligning with the action items the body has been working on for nearly a decade.
President Trump remarked to reporters covering the NATO summit in London that while he is not in love with companies such as Facebook and Google, he would defend U.S. business interests from unfair and discriminatory laws. “I’m not going to let people take advantage of American companies . . . [i]f anyone is going to take advantage of the American companies, it’s going to be us, it’s not going to be France.”
1In addition to France, UK, Spain, Italy Belgium and Austria are considering similar legislation
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