In July this year, the French government had introduced a 3% digital services tax that was applied retroactively from 1st January 2019. Obviously, this has affected American tech companies such as Google, Apple, Facebook and Amazon.
As a form of retaliation, the US intends to slap duties as high as 100% on USD 2.4 billion worth of French goods which include champagne, cheese and luxury handbags.
According to the US Trade Representative’s office, their “Section 301” investigation found that the digital tax was inconsistent with prevailing principles of international tax policy and is burdensome for affected US companies.
US Trade Representative, Robert Lighthizer said that the government was also considering to open similar investigations of digital services taxes of Austria, Italy and Turkey, but there’s no mention of proposed digital taxes in Canada and Britain. Lighthizer said that the USTR is focused on countering the growing protectionism of EU member states which unfairly discriminates US companies.
The reality is that the digital tax doesn’t target US companies alone as it also affects Chinese, German, British and even French tech companies. The 3% levy is applicable to revenue from digital services earned by companies with more than EUR 25 million in French revenue and EUR 750 million worldwide. In Turkey, the proposed digital tax rate is 7.5% while the UK intends to impose a 2% levy on revenues of search engine, social media and online marketplaces.
Malaysia will impose a 6% digital tax from 1st January 2020 and it is expected to rake in RM2.4 billion per year. Yesterday, Google had sent out notices of the 6% tax to all paying G Suite customers in Malaysia.
In response to the tariff threats made by the US, the France government said that the European Union will retaliate. The French Finance Minister, Bruno Le Maire said, “It’s not worthy of an ally, and it’s not the behaviour we expect from the US toward one of its main allies, France, and more generally, Europe.” He added that if there were new sanctions by the US, the EU will be ready to retaliate.
Speaking to reporters in London, US President Trump said “I’m not going to let anyone take advantage of American companies. If anyone is going to take advantage of American companies, it’s going to be us. I don’t want France to be taxing American companies. If anyone’s going to tax American companies, it’s us.” Trump also took the opportunity to criticise Macron, saying that the French president sometimes does things that are “counterproductive to his country”.