France demands digital tax payments from US tech groups

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French tax authorities have started demanding millions of euros from U.S. tech groups as they launch a new digital services tax that has angered Washington.

Facebook and Amazon are among the companies to have received in recent days a communication from the French authorities demanding payment of the tax for 2020, according to French officials, business leaders and advisers.

The levying of the tax, which Washington says is an example of an unfair trade practice because it largely affects American businesses, threatens to reignite transatlantic trade tensions and trigger new tariffs on Europe a few weeks before the inauguration of Joe Biden.

The office of the U.S. Trade Representative is now expected to impose a 25 percent tariff on $ 1.3 billion in French handbags and makeup, having initially threatened to strike champagne and cheeses with tariffs. 100 percent import.

Several governments have already introduced or are planning to introduce their own tax on digital services. They claim that tech companies pay too little tax on the profits they make in many countries, in part because they register them in low-tax jurisdictions like Ireland.

Paris’ demand to collect the tax represents the end of a truce with Washington. The two sides agreed in January to allow more time for talks on a multilateral fiscal framework overseen by the OECD, the Paris-based organization of rich countries, to take place during the year. As part of this break, France has agreed to temporarily stop collecting its digital tax.

However, the United States suspended talks with OECD countries in June. No solution is expected before the middle of next year.

“Everyone looked pretty hard at the OECD process and said we need a deal,” said Cathy Schultz, vice president of tax policy at the National Council for Foreign Trade in Washington. “But if we don’t come to an agreement, these things are just going to become rampant and we are going to have more trade war.”

France has said it wants an EU proposal in early 2021 for the taxation of digital services across Europe in case the OECD negotiations continue to fail to progress. But his preferred option remains an international solution across the organization.

“We can’t wait any longer and tech companies are the big winners from the pandemic,” said a French official, adding that the European plan was “a lever” in the ongoing negotiations. “Their turnover is booming and they did not pay fair taxes even before the pandemic.”

Demands to collect the tax and the likely imposition of more tariffs on a US ally pose a problem for Mr Biden, who said he would seek to smooth diplomatic and trade tensions with European capitals.

However, on Capitol Hill there is bipartisan opposition to countries imposing their own taxes on digital services rather than negotiating a multilateral agreement through the OECD.

Ron Wyden, the top Democrat on the influential Senate finance committee, who called the French tax “discriminatory,” said Paris’ effort to start collecting taxes was “an escalation against American employers Which served to “leave more American industries open.” unfair foreign taxes ”.

Brian Jenn, former head of the US Treasury, doesn’t expect Washington’s position to fundamentally change.

“The Biden administration may not be as aggressive in threatening new tariffs, but it can take advantage of tariffs already on the table and use them to negotiate taxes,” he said. “I wouldn’t expect the Biden administration to just remove them.”

France is the European country where the tax on digital services is the most advanced. But several other governments have proposed or enacted them into law, including the UK, which is expected to start collecting its own levy in April.

Over the summer, U.S. Trade Representative Robert Lighthizer announced polls in a number of countries that are adopting taxes on digital services, including the UK, Italy, Austria, Brazil, Indonesia and the EU. This could lead to more tariffs before the end of the Trump administration.

“We know Lighthizer needs to do this job, and they are committed to getting certain things to get to the door,” Ms. Schultz said. “But yes, the Biden administration is going to have to step in and take care of all of this. It is a complicated problem. “

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