Washington: US President Donald Trump has ordered an investigation into France’s planned tax on internet services that will hit American tech giants especially hard, officials said Wednesday.
The probe into unfair trade practices could pave the way for Washington to impose punitive tariffs — something Trump has done repeatedly since taking office.
And it adds yet another bone of contention in the transatlantic trade disputes that now also include trade in steel, aluminium, automobiles, aircraft and agriculture.
“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies,” US Trade Representative Robert Lighthizer said in a statement.
The proposed three percent tax on total annual revenues of companies providing services to French consumers only applies to the largest tech companies, “where US firms are global leaders,” the trade representative’s office said.
Some internet heavyweights have taken advantage of low-tax jurisdictions in places like Ireland while paying next to nothing in other countries where they derive huge profits.
The so-called Section 301 investigation is the primary tool the Trump administration has used in the trade war with China to justify tariffs against what the United States says are unfair trade practices.
Addressing the conundrum
The US Trade Representative’s office will hold hearings to allow for public comment on the issue over several weeks before issuing a final report with a recommendation on any actions to take.
Despite the objections to the French tax proposal, however, the statement said the United States will continue to work with other advanced economies to address the conundrum of how to tax tech companies.
The United States is pushing for an overarching agreement on taxation through the Group of 20 economic forum, something supported by Google.
The company said last month the change would probably mean Silicon Valley tech giants would pay less in the United States and more in other jurisdictions, in a departure from the longstanding practice of paying most taxes in a company’s home country.
Group of 20 finance ministers last month also said they “welcomed” proposed measures from the Organization for Economic Cooperation and Development, a forum for advanced economies, to revamp international rules on corporate taxation.
“We will redouble our efforts for a consensus-based solution with a final report by 2020,” they said in a statement.
The Computer & Communications Industry Association on Wednesday applauded the US Trade Representative’s move, saying the French tax would retroactively require US internet giants operating in France to turn over a percentage of their revenues from the beginning of this year and violates international trade commitments.
“This is a critical step toward preventing protectionist taxes on global trade,” CCIA official Matt Schruers said in a statement.
“CCIA encourages France to lead the effort toward more ambitious global tax reform, instead of the discriminatory national tax measures that harm global trade.”