France will sue the United States at the World Trade Organization (WTO) should the latter impose new import duties on French exports to the U.S. to retaliate against France's new 3% digital tax on revenue from digital services.
"We are ready to take this to an international court, notably the WTO, because the national tax on digital companies touches U.S. companies in the same way as EU or French companies or Chinese. It is not discriminatory," argued Finance Minister Bruno Le Maire.
He also contends the digital tax is necessary to make internet giants pay their fair share of taxes. The Ministry of the Economy and Finance estimates the digital tax will raise €500 million per year for France. Paris has long and loudly complained U.S. digital companies such as Facebook, Google and Amazon aren't paying enough tax on revenues earned in France. The law targets around 30 big tech companies.
In July, the French government decided to levy a 3% tax on revenue from digital services earned in France by firms with more than €25 million in French revenue and €750 million ($845 million) worldwide. The new tax will be collected retroactively from the start of 2019.
Le Maire said France was willing to discuss a global digital tax with the United States at the Organization for Economic Cooperation and Development (OECD). He emphasized such a tax won't be optional for internet companies.
"If there is agreement at the OECD, all the better, then we will finally have a global digital tax. If there is no agreement at OECD level, we will restart talks at EU level," noted Le Maire.
He said the new EU Commissioner for Economy Paolo Gentiloni had already proposed to restart these talks. France implemented its digital tax after European Union member states failed to agree on an internet tax valid across the EU after opposition from Ireland, Denmark, Sweden and Finland.
The U.S. opened an investigation into the 3% tax in July, saying it "unfairly targets American companies." Trump has threatened to impose tariffs as high as 100% on French goods in retaliation. Big tech companies testified against the tax. Amazon said it will some of the costs to small and medium-sized enterprises in France.
All this acrimony between France and the U.S. follows an agreement struck last Aug. 26 that both countries will settle their differences over the 3% digital tax, said French president Emmanuel Macron.
Macron said under the deal, France will eliminate its 3% tax once a new international agreement on digital taxation is reached. Companies that pay France's tax will be reimbursed once the international agreement is in place.
"We've done a lot a work on the bilateral basis, we have a deal to overcome the difficulties between us," said Macron.
The European Commission estimates traditional businesses on average face a 23% tax rate on their profits within the EU. On the other hand, internet companies typically pay only 8% or 9%.
