The Digital Giant Tax, buried by Trump and Macron?

Thierry Breton suggère que l’Union européenne pourrait faire cavalier seul. // Source : Lukasz Kobus/ European Union, 2019


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A point of contention between France and the United States, the tax on digital giants is the subject of intense negotiations between the two sides of the Atlantic. While it could trigger a trade war between the two continents, Donald Trump and Emmanuel Macron calm things down.

The tax on large digital companies, which came into effect this summer, continues to poison Franco-American relations. Viewed from Paris, this tax provision is intended to offset the tax avoidance strategies that some large groups are able to implement to limit their exposure, in the name of fairness. But from Washington’s point of view, it is deemed to discriminate against US companies, as they make up the bulk of eligible companies.

It is against this backdrop that the tone has gradually increased over the months between the two sides of the Atlantic, first in a calm atmosphere – Mike Pompeo, the head of the State Department, asked France to renounce this tax during an exchange with his counterpart Jean-Yves Le Drian last April – and then more abruptly, with the launch of an investigation that could lead to economic reprisals. It could be higher tariffs, for example.

Seeking common ground

Today is the time for de-escalation. On January 20, Emmanuel Macron announced that he had had an exchange with Donald Trump to work out a “good agreement” in order toavoid any escalation of rates“. The French President wants to avoid one of his ideas in the 2017 election campaign turning against other parts of the economy, such as the wine sector – even if, in fact, this is already partly the case: Amazon passes on what it has to pay to French sellers.

Above all, it is a question of not turning this tax into the match that will trigger a wider battle between the European Union and the United States. Indeed, the Minister of Economy and Finance, Bruno Le Maire, indicated again on January 17 that any American sanction would result in a mirrored response. This is the commitment made and reiterated by the European Commission, be it Phil Hogan, in charge of trade, Thierry Breton, who is in charge of digital, or Ursula von der Leyen, its President.

Already last summer, Donald Trump and Emmanuel Macron found common ground in the G7. The agreement agrees that the amounts levied by this digital tax can be deducted from the amounts claimed by the future levy to be introduced at OECD level, as soon as the international tax rules are renewed. However, progress on this issue is slow, as not all the countries concerned are putting the same momentum into the discussions as Paris.

A meeting between Bruno Le Maire and his American counterpart is scheduled to take place on 22 January. One of the levers that France would be willing to use would be to suspend the collection of its tax in 2020, in order to give guarantees to the United States and leave room for negotiations. Moreover, Paris has reminded us on several occasions that its tax is not an end in itself, but merely a temporary measure, which will be withdrawn as soon as a comprehensive reform of digital taxation is completed.

Thierry Breton suggère que l’Union européenne pourrait faire cavalier seul. // Source : Lukasz Kobus/ European Union, 2019

Thierry Breton suggests that the European Union could go it alone // Source: Lukasz Kobus/ European Union, 2019

(Des)union européenne

In the meantime, the clock is ticking. The French government hopes to have this dossier completed by the end of the year. For his part, Thierry Breton made it clear that if America does not play the reform game, then the European Union will create a tax regardless of what the OECD decides (or not). Other countries, such as Italy and the United Kingdom, are on the same line as France on this subject. The problem is that when it comes to taxation, unanimity is required. And other countries are putting on the brakes.

The Digital Services Tax, its official name, is a tax of 3% of revenues, designed to offset the tax schemes of the net giants. It only concerns groups with annual revenues of at least €750 million, in e-commerce and advertising activities. In addition, 25 million euros are to be generated from business with French customers. On average, the yield from the tax is estimated at EUR 500 million per year.

  • Read: The government is trying to spare French companies

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