France's Macron Pauses Tech Tax After U.S. Pressure
January 20 2020 - 7:32PM
Dow Jones News
By Bojan Pancevski and Sam Schechner
France and the U.S. have struck a truce on the divisive issue of
taxing digital giants like Google parent Alphabet Inc., averting a
trade war on the matter -- at least for now.
The detente comes after the French President Emmanuel Macron
reached out by phone to President Trump on Sunday seeking a way to
end the threat of tariffs while they work out a broader accord on
digital taxation, according to U.S. and French officials.
As part of the truce, Mr. Macron agreed to postpone until the
end of this year a tax that France levied on big tech companies
last year, one U.S. official said. In return, the U.S. will
postpone retaliatory tariffs until then, too, the official
said.
The U.S. official said Mr. Macron had buckled under pressure
from Mr. Trump.
France has refused to withdraw its digital tax, a French
official said. In theory the country could suspend collection of
the tax -- which began last fall -- while both sides seek a broader
deal.
French officials say they now hope to reach an international
agreement on digital taxation by the end of 2020.
Mr. Macron said in a tweet Monday evening that he had a "great
discussion" with Mr. Trump and that "we will work together on a
good agreement to avoid tariff escalation."
A White House spokesman said in a written statement that Mr.
Trump had spoken with Mr. Macron and that "the two leaders agreed
it is important to complete successful negotiations on the digital
services tax, and they also discussed other bilateral issues."
The spat started last year when France, frustrated at the slow
pace of international discussions on taxing tech giants,
implemented a 3% tax on digital revenue from tech companies with
more than EUR750 million in global sales. In response the U.S. has
threatened to slap tariffs of up to 100% on $2.4 billion of French
imports including wine.
While France was the first to implement its tax, several
countries, including Italy and Austria, have since followed suit
with their own, distinct schemes. Others including Canada and the
U.K. have said they are exploring digital taxes of their own.
At the heart of the fight is how to update decades-old tax rules
to account for globe-spanning tech giants. Modern multinationals --
particularly ones with digital offerings -- can sell their products
across borders in ways that leave little taxable profit in a
country where those products are consumed.
The European Union had last year attempted to reach an agreement
on a digital tax like France's that would span the bloc. But it
abandoned the effort -- which would have required unanimity among
EU nations -- because of opposition from smaller countries such as
Ireland and Luxembourg that are home to the regional headquarters
of several large U.S. tech companies.
To stave off a patchwork of unilateral national levies on
American firms, the U.S. has taken an active role in multinational
negotiations to come to an international consensus on digital
taxation, under the auspices of the Organization for Economic
Cooperation and Development, the rich-country club.
So far, a political agreement at the OECD on how to split up
digital profits has proven elusive. But the Franco-American truce
increases the time for the U.S. and European countries, including
France, to find a common ground. France and other countries had
pledged to call off their national digital taxes if an agreement
can be reached at the OECD.
The truce between France and the U.S. follows a meeting in
Berlin between Mr. Macron and Trump national security adviser
Robert C. O'Brien, according to people familiar with the talks.
Mr. O'Brien told Mr. Macron that the digital tax could trigger a
trade war between the U.S. and France, and subsequently between
America and the EU, the people said.
French officials say U.S. Treasury Secretary Steven Mnuchin and
France's finance minister will pursue talks on an international tax
deal when they meet Wednesday in Davos, Switzerland, on the
sidelines of the World Economic Forum.
The deal, which will also lead to talks with U.S. Trade
Representative Rober Lighthizer, will allow the parties "avoid what
could have been an immediate and unfortunate trade spat," a U.S.
official said.
Mr. Trump and EU President Ursula von der Leyen are also due to
meet on the sidelines at Davos in a bid to stave off the imposition
of U.S. tariffs on EU imports. EU-U. S. trade talks have made
little progress over the past year.
Write to Bojan Pancevski at bojan.pancevski@wsj.com and Sam
Schechner at sam.schechner@wsj.com
(END) Dow Jones Newswires
January 20, 2020 19:17 ET (00:17 GMT)
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