Digital Tax Plan Put on Hold

The French government agreed to push the tax on big tech companies off until November ahead of discussions with U.S. officials.

French Finance Minister Bruno Le Maire, left, and European Trade Commissioner Phil Hogan attend a media conference after their meeting in Paris, Jan. 7, 2020.
French Finance Minister Bruno Le Maire, left, and European Trade Commissioner Phil Hogan attend a media conference after their meeting in Paris, Jan. 7, 2020.
AP Photo/Michel Euler

DAVOS, Switzerland (AP) — France has agreed to put on hold a tax on big tech companies' online business until November as a gesture of goodwill ahead of discussions later with the U.S. Treasury Secretary, a French government official said Wednesday.

The official, who spoke only on condition of anonymity ahead of the meeting between French Finance Minister Bruno Le Maire and the U.S.'s Steven Mnuchin, said collection of the digital tax will be delayed in exchange for an American promise to drop threats of new tariffs on French wines.

The official insisted that France is not shelving the tax altogether. Set up in July, the measure hits big internet companies including Google and Amazon with a 3% tax on the revenues from digital business made in France.

The official said that tech companies will still pay some kind of tax on digital revenues this year - it will either be the French tax or a new international one brokered by the Organization for Economic Co-operation and Development group of leading industrial nations.

The OECD has been seeking to come up with a framework that would allow France to suspend its unilateral tax.

Le Maire was set to meet with Mnuchin and OECD Secretary General José Ángel Gurría at the World Economic Forum in the Swiss ski resort of Davos later Wednesday.

“I absolutely expect we will come to a solution because there is no plan B," Gurría told The Associated Press.

The French measure is an attempt to get around tax avoidance measures by multinationals, which pay most of their taxes in the EU country they are based in — often at very low rates. That effectively means the companies pay next to no tax in countries where they have large operations.

The tax applies to the digital business of companies that have global revenues of over 750 million euros ($833 million), and French revenue over 25 million euros. The revenue threshold is supposed to allow more room for startups. France argues that tech companies are abusing their market dominance, notably through tax avoidance, and preventing others from a fair chance of competing.

The U.S. government responded to the French initiative by threatening tariffs on a list of goods, including French wine. President Donald Trump has also held out a bigger threat, to slap tariffs on cars made in the EU, where automaking is a huge industry.

To avoid an escalation, the U.S. and France agreed in August to try to create an international agreement on how to tax digital business by mid-2020.

The French official said international tech companies have already paid taxes in 2019, and were scheduled to pay a new round of taxes in April, and another in November. The French government offer this week is to delay the April payment until the end of the year, in hopes that a new international deal is in place by then that would replace the French tax.

The official said European support has been crucial in the talks with the U.S., noting similar taxes or tax efforts in Austria, Italy, Spain and Britain. That shows that it’s not just about France, the official said.

Speaking Wednesday on CNBC from Davos, Trump faulted Europe for being “very tough” with the United States, though he had had a “great talk” with EU Commission President Ursula von der Leyen a day earlier.

“But I said 'If we don't get something, I'm going to have to take action. And the action will be high tariffs on their cars and other things that come into our country.'” he said. “Now saying that, I don't want your audience to get nervous. They (Europe) are going to make a deal because they have to.”

"They have no choice," he said.

Britain, which is scheduled to leave the European Union on Jan. 31 and is keen to strike a trade deal with the U.S. as well as one with its former partners in the bloc, has become caught up in the tariff dispute, too.

Britain is due to impose a 2% levy on the digital business of firms making 500 million pounds ($640 million) a year in global revenues from April.

Britain's Treasury chief, Sajid Javid, sought to walk a fine line on the issue.

“We plan to go ahead with our digital services tax in April,” he told a panel discussion in Davos. “It is a proportionate tax and a tax that is deliberately planned as a temporary tax. It will fall away when there is an international agreement.”

Mnuchin told the same panel that the two men would have “some private conversations about that.”

“We’ve been pretty clear that we think the digital tax is discriminatory in nature,” Mnuchin said.

Alluding to plans by dozens of countries contemplating such taxes, he said: “If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on their car companies.”

Gurría urged those involved to give “time and the space” to the effort to create a global deal on the issue.

“Everybody will gain from that and then you won't have to be having these bilateral confrontations,” he said.

More in IoT