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France pauses Big Tech digital tax to avoid US-Europe trade war

Lianna Brinded
·Head of Yahoo Finance UK
US Treasury Secretary Steven Mnuchin attends a session at the Congres center during the World Economic Forum (WEF) annual meeting in Davos, on January 21, 2020. (Photo by Fabrice COFFRINI / AFP) (Photo by FABRICE COFFRINI/AFP via Getty Images)
US Treasury Secretary Steven Mnuchin attends a session at during the World Economic Forum annual meeting in Davos, on January 21, 2020. Photo: Getty Images

France has pressed pause on its plan to implement a digital tax that would hit the world’s biggest tech companies — especially those in the US.

Speaking at the World Economic Forum in Davos, France’s minister of economy and finance of France Bruno Le Maire confirmed the halt, saying that compromise would be better than a trade war between the US and Europe.

In a session entitled ‘How to tax the digital economy,’ Le Maire said that “we have found an agreement with US Treasury Secretary Steve Mnuchin and we are still in the process of defining the basis with the Organisation for Economic Co-operation and Development (OECD). We think it [would be] far better for all of us to have an international negotiation at the OECD with a view of finding a compromise and agreement by the end of 2020 — instead of entering into a trade war between the US and Europe.”

“Because a trade war would have two consequences. First, a slow down in growth and then it would mean an end in the international negotiation, the end of an international solution for both digital taxation and minimum taxation,” he added.

“So, I really think that we all have the chance to this this international negotiation, we are united in Europe and I hope that by the end of 2020 we will get this new international taxation system.”

The comments come just a day after the OECD’s Secretary General Angel Gurria told press at the WEF that there needs to be a global agreement otherwise it could spark countries implementing their own version of the digital tax as and when they want in a non-standardised way.

READ MORE: US threatens tit-for-tat levy if UK pursues 'Big Tech' tax

He then asked the UK to pause its planned 2% tax on the UK sales of search engines, social media companies, and online marketplaces from April this year — following in line with France.

The UK’s initial digital tax move came shortly after France imposed a new law last year. It was set to retroactively go into effect from early 2019 and would apply to any digital company with sales of more than €750m (£670m, $850m), in which 30 companies are expected to be affected.

However, Le Maire emphasised that while the tax was on pause “the digital companies in France will pay their due taxes in 2020. They want to be very clear on that.”

“We were the first country to introduce a digital taxation in 2019 for one simple reason... There is a loophole in international tax system and the loophole is digital activities. The biggest companies in the world are making huge profits with millions of consumers in territories where they do not pay their due taxes. Nobody can accept that and we will never give up,” he added.

A report last year accused six US tech firms — Amazon (AMZN), Facebook (FB), Google (GOOG), Netflix (NFLX), Apple (AAPL) and Microsoft (MSFT) — of “aggressively avoiding” $100bn of global tax over the past 10 years by moving sales and profits through low-tax countries such as Bermuda, Ireland, Luxembourg, and the Netherlands.

“Lets be clear, we have decided to introduce a fair digital taxation at national level, it has been paid in 2019,” said Le Maire.

“We have just given some time to have a international solution at OECD on the basis of the excellent work of the OECD because we are all in the view [that it is] far more preferable [for] one single international solution for a fair and efficient taxation of activities instead of national taxations all over the world, especially in Europe.

He repeated, “lets be clear — in 2020 all digital companies under the scope of the OECD or national taxation will have to pay but we want to give a chance of an international solution.”

READ MORE: UK told to ‘hold fire’ on big tech digital tax

This week, US Treasury Secretary Mnuchin hinted at possible tariffs on the UK if it presses ahead with plans for a tax on ‘Big Tech’ companies.

He said at a panel discussion: “We’ve been pretty clear that we think that the digital tax is discriminatory in nature.

“There’s an OECD process that we’re participating in. International tax issues are very complicated, they take long times to look at.

“If people want to just arbitrarily put taxes on our digital companies, we’ll consider arbitrarily putting taxes on car companies.”

READ MORE: What is the digital services tax? How it impacts big tech companies and the US