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US & France Hit Pause on Battle over Digital Taxes

Tariffs and DST France USA

US President Donald Trump and his French counterpart Emmanuel Macron have agreed to set aside their disagreements over France’s digital services tax and extend the negotiations for a global solution on the taxation of digital tech companies.

Back in July of last year, the French government passed a 3 percent tax on the revenue of multinational tech companies operating in France, a move that angered the Trump administration.

In retaliation, the US threatened to impose a massive tariff on French exports such as cheese, wine, handbags and perfumes into the US.

Bruno Le Maire, France’s finance minister, said that the two presidents had “agreed to avoid all escalation between the U.S. and France on this digital tax issue,” albeit the possibilities of reaching some sort of agreement “remain difficult.”

As reported by the New York Times, Le Maire also “signaled that France would take a step back from the dispute by offering to postpone collection of the tax until the end of 2020, giving time for negotiators at the reach an agreement on a broader framework to tax digital firms.”

The Financial Times also reported that France “made ‘a certain number’ of concessions to assuage the Trump administration over plans to impose a digital services tax.”

However, Le Maire told French reporters on Monday, “I won’t hide that this is very difficult. It’s one of the most difficult negotiations that I have led. It’s far from won.” 

Ultimately, the French Minister said, “What I am trying to impress on our American friends is that the fight is not between France and the US, or Europe and the US — the fight is to put in place just taxation on digital activities.”

According to French officials, this truce will be in place until the end of 2020 so that all parties involved at an OECD level can hopefully find an acceptable way of taxing digital companies.

Furthermore, the Trump administration is hoping both the UK and Italy will follow suit and halt plans to implement their own versions of a digital services tax.

However, speaking to the BBC, a UK Treasury spokesperson said, “We are fully engaged in international discussions to address the challenges digitalisation poses for tax. Our strong preference is for an appropriate global solution.”

Regardless of this commitment, the spokesperson added, “We've committed to introduce our Digital Services Tax from April 2020,” which “will be repealed once a global solution is in place.”

Industry Reacts to News on Digital Tax Truce

Industry Reacts to News on Digital Tax Truce

Several industries that would have been affected by both the digital services tax and the countering tariffs shared their views on this temporary compromise.

Jennifer McCloskey, VP for Policy at the Information Technology Industry Council, told the Financial Times, “Our hope is that the temperature gets turned down and folks reach some type of conclusion that gives the OECD process a bit of a jolt… We’re just focused on how do we get to a constructive outcome there.” 

Furthermore, the Computer & Communications Industry Association praised this decision.

“We welcome the reported French suspension of their digital tax & the renewed focus on achieving global tax reform,” CCIA Europe said.
American tech giants Microsoft and Apple welcomed this news.
Microsoft President Brad Smith told the BBC “I think that it does make sense for big tech companies to pay appropriate taxes wherever we do business,” and expressed his desire to see tech companies “find common ground” on these sorts of issues.

Additionally, Tim Cook, Apple’s CEO, supported this move towards an all-inclusive global solution.

“I would certainly be the last person to say that the current system or the past system was the perfect system. I'm hopeful and optimistic that they (the OECD) will find something,” he said.

Will this battle rage on or will there be a comprehensive OECD-led solution that will appease everyone?