France’s digital tax riles the White House

IT CAN be horribly difficult to tax tech giants’ profits. They stash their intangible capital, such as intellectual property, in tax havens, booking only low profits elsewhere. There were screaming headlines in 2018 when it was uncovered that Amazon’s British subsidiary paid £1.7m ($2.2m) in corporate tax despite revenues of $11.4bn. Rich countries have haggled over how to reform the global tax system, making progress in a number of areas, but not on taxing tech. Now France, it seems, has had enough.

On July 11th it passed a bill allowing it to levy 3% on the French revenues of big internet firms—those with at least €750m ($844m) of revenue worldwide and €25m ($28m) within France.

That has not gone down well at the White House, which says the measure unfairly takes aim at American companies like Google and Amazon. On the eve of the French vote, the United States Trade Representative said it would investigate France under Section 301, legislation that allows it to defend itself against discriminatory actions abroad, and which it has already used to levy tariffs on China. Expect similar measures, perhaps hitting French exports such as cheese, to follow.

Some think France’s unilateral action is mis-timed. Several European countries, Britain among them, are mulling digital-services taxes. But all say they would prefer a global deal, which the OECD, a club of rich and middle-income countries, is trying to broker. France’s action, critics say, could now undermine that multilateral process. What is more, a world in which different countries imposed different digital tax regimes would be horribly messy.

That may be true. Yet some European countries feel frustrated that America has dragged its feet over the OECD plans—precisely, they suspect, because it wants to protect its largest firms. A back-up plan had been to levy a digital-services tax across the European Union. But that move has been stymied in part because some smaller European countries also have an interest in maintaining the status quo, particularly those, like Ireland, whose generous tax regimes have helped them attract the European headquarters of big tech firms.

France says that its digital tax will last only until there is a global agreement that will replace it. Furthermore, says Bruno Le Maire, France’s finance minister, tax is a “sovereign matter”.

Such notions should hold sway at the Trump White House. The president is not a big fan of big tech firms (Jeff Bezos, the boss of Amazon, also owns the Washington Post, a newspaper that he detests). His administration and Congress are threatening greater regulation of Silicon Valley firms. But foreign governments demanding a slice of their profits or revenues may be a different matter. A statement by Amazon declared: “We applaud the Trump Administration for taking decisive action against France and for signalling to all of America’s trading partners that the US government will not acquiesce to tax and trade policies that discriminate against American businesses.”

Underlying everything is a sense within America that Europeans, with few digital champions of their own, have reserved a special vindictiveness for world-dominating Silicon Valley firms. The European Commission has in recent years levied billions in fines against Google over anti-competitive practices. The Irish government was ordered to claw back $15bn from Apple in 2016, after the commission ruled it had offered the firm a sweetheart deal. Facebook, too, could be hit for alleged privacy breaches. All this at a time when America and the EU are discussing a trade deal. Those talks have hit a wall. France has just added another brick.