Thursday 11 July 2019 5:15 pm

France passes digital services tax despite US investigation

France has given final approval to a new digital services tax on tech giants, despite protests from the US that the move unfairly targets American companies.

The three per cent levy will apply to digital revenue earned in France by multinational tech giants such as Facebook, Google and Amazon.

Read more: France will tax Amazon and Facebook as tech tax talks with the EU falter

US President Donald Trump yesterday ordered a probe into the tax, opening the door for tariffs or trade restrictions against France. However, the French senate pushed ahead with the vote. 

“Between allies, we can and should solve our disputes not by threats but through other ways,” finance minister Bruno Le Maire told senators before the final vote.

The tax, which will be applied retroactively from the beginning of 2019, will apply to firms with more than €25m (£22.4m) in French revenue and €750m in global revenue.

France introduced the levy after EU countries failed to reach an agreement on a tax to be imposed across the bloc, but the move has sparked anger in the US.

“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies,” US trade representative Robert Lighthizer said in a statement yesterday.

The probe gives Lighthizer up to a year to investigate whether France’s digital tax would hurt US companies.

But Le Maire pushed back at the pressure. “France is a sovereign country, its decisions on tax matters are sovereign and will continue to be sovereign,” he said.

It came as the UK published draft legislation for its next finance bill, which included a digital service tax for tech giants.

The government said the proposals were “targeted and proportionate”, and would ensure large digital firms pay their fair share of tax.

Giles Derrington, associate director for policy at industry body Tech UK, warned of a lack of clarity over how the new tax would work in practice.

“It risks making investing in the UK less attractive, increasing costs for consumers and will likely hinder progress towards a long term global solution,” he said.

The UK’s proposed tax is one per cent lower than the French levy, and the government is yet to specify which firms will be impacted.

Read more: G20 vows to crack down on tech giant tax havens by 2020

“There is clearly no appetite at present from the UK government to shelve the proposals pending wider global coordination,” said Matthew Herrington, tax partner at KPMG.

“However, it does remain to be seen whether this will change in light of today’s announcement that the US may impose retaliatory tariffs relating to the French digital services tax.”

Main image credit: Getty