France Orders Big Tech Companies To Pay Up 3% Digital Tax, US May Hit Back With Retaliatory Tariffs On French Goods

In a move that is likely to incur the wrath of US government, the French tax authorities has sent out notices to big tech companies demanding they pay millions of euros as digital service tax.

Google, Facebook and Amazon are among the companies that have received the tax notice from the French authorities.

The French finance ministry was hoping to raise about 500 million euros this year from the tax, but the 2021 budget bill puts the figure at 400 million.

In July last year, France passed a law approving a new digital services tax that impose a 3 per cent annual levy on French revenues of digital companies with yearly global sales worth more than $844 million and French revenue exceeding 25 million euros. Historically, big tech behemoths have paid taxes on income in the country where they book their profits. But European countries content that they should also be able to collect digital services taxes, given that these companies make big profits off sales in the region. The United Kingdom, Italy and Austria have implemented similar measures.

US Trade Representative Robert Lighthizer had expressed serious concern that the tax "unfairly targets American companies".

France subsequently suspended collection of the tax pending the negotiations at the Organisation for Economic Cooperation and Development (OECD) to come up with a multilateral taxation framework to address the issue.

The negotiations however has not progressed as the Trump administration became reluctant to sign on to a multilateral agreement ahead of the U.S. presidential election.

NBC news quoted French Finance Minister Bruno Le Maire as saying “We will levy this digital taxation mid December as we always explained to the U.S. administration,”

“Our goal remains to have an OECD agreement by the first months of 2021 because we remain deeply convinced that ... the best way of dealing with this key question of digital taxation is to get a multilateral agreement within the framework of the OECD,” he added.

The collection of digital services tax is likely to emege as flash-point in the transatlantic trade tensions and pose a challenge to the incoming US administration. President-elect Joe Biden has pledged to rebuild relationships with key allies.

Given that president Donald Trump views the French tax as a direct attack on American businesses, US may retaliate with tariffs of 25 per cent on $1.3bn worth of French handbags and make-up.