France would need big tech companies to give its digital services tax, a move that’s likely to provoke revenge by President Donald Trump and pitch the incoming US administration into another trade fight.
The 3% tax on revenue from digital services within the country was introduced last year. But the French government had suspended collections while negotiations on a broader overhaul of the worldwide legal system played out at the Organization for Economic Cooperation and Development. Those talks haven’t produced a breakthrough.
“Companies received the tax notice for this year,” the finance ministry said during a statement on Wednesday. Google (GOOGL), Facebook (FB), and Amazon (AMZN) are among the US tech firms which will need to pay the tax, which applies to companies with global revenue of quite €750 million ($894 million).
The move sets the stage for a transatlantic clash just before Trump leaves office. His administration which withdrew from the OECD talks in June pledged to retaliate if France moved ahead with the tax, and it could slap retaliatory tariffs on $1.3 billion in French goods, including handbags and cosmetics, as soon as Jan. 6.
That could put the incoming US administration in a difficult position because it seeks to deal with Covid-19 and economic fallout from the pandemic. President-elect Joe Biden has guaranteed to rebuild relationships with key allies. But Democrats have formerly opposed such digital services taxes, which they’ve claimed unfairly target US companies.
French minister of finance Bruno Le Maire said earlier in the week that he hopes to assure Biden to re-engage with the OECD process so an agreement is often reached. The French government had consistently said the taxes would come into effect in December within the absence of a deal, he added.
“I hope this new Biden administration will mean a replacement start within the relationship between Europe and therefore us and one possibility of marking this new start would be to urge a consensus at the OECD level by the start of 2021,” Le Maire said at a Bloomberg TV event.
The debate over how tech companies should be taxed has been happening for years.
Historically, companies have only been required to pay taxes on income within the country where they book their profits. But European countries argue they ought to even be ready to collect so called digital services taxes, as long as these companies make big profits off sales within the region. The UK, Italy, and Austria have implemented similar measures.