US technology companies have called on France to withdraw its plans for a digital services tax, attacking it for being unilateral and discriminatory, while urging the Trump administration not to retaliate with the use of tariffs.
At a hearing in Washington on Monday, senior executives from Amazon, Google and Facebook as well as lobbyists for Silicon Valley, said the move by Paris to apply the levy would damage their businesses and set a dangerous precedent in an era of mounting protectionism.
“Today’s hearing is about more than the French digital services tax. It is about preventing widescale application of unilateral excise taxes,” said Jennifer McCloskey, vice-president for policy at the Information Technology Industry Council, a Washington-based lobbying group.
France has led the way in Europe towards imposing higher taxes on digital sales, amid frustration that US technology giants have been generating high volumes of business in the country but avoided large tax bills. An EU-wide effort to find a common tax regime for digital sales faltered, and multilateral negotiations at the OECD have advanced slowly.
Other large European countries, including the UK, Italy and Spain, have considered following in France’s footsteps, amplifying the threat to the US technology groups.
“These countries are watching France’s experience and considering whether a unilateral approach might be easier or more advantageous than pursuing a multilateral agreement,” said Nicholas Bramble, trade policy counsel at Google. “This is a concern for international trade and the wider economy, if countries follow the DST model”.
The hearing on Monday was called by the office of the US trade representative, which has launched a so-called section 301 investigation into the digital tax, to explore whether it amounts to an unfair trade practice that harms the US, potentially paving the way for punitive measures against Paris.
But while Silicon Valley is harshly critical of France’s move, it wants both Paris and Washington to redouble their efforts to find a multilateral solution without escalating trade tensions.
“We support the US government’s efforts to investigate these complex trade issues but urge it to pursue the 301 investigation in a spirit of international co-operation and without using tariffs as a remedy,” Ms McCloskey said.
Donald Trump has threatened to put tariffs on French products, including wine, in response to the digital tax. US officials are also considering other retaliation, including a doubling of taxes on French individuals and businesses in the US.
Some powerful lawmakers on Capitol Hill are backing tougher action. Charles Grassley, a Republican from Iowa, and Ron Wyden, a Democratic senator from Oregon, the top lawmakers on the Senate finance committee, in June suggested that the US Treasury invoke Section 891 of the tax code, which allows such a doubling of taxation targeting companies and individuals from countries that have imposed discriminatory taxation on US groups. The US Treasury department said in July it was considering such an option.
US technology companies have criticised the digital tax on the basis that the revenue threshold for companies subject to the tax is set so high that it would affect American groups, rather than its French competitors. They have also attacked it for applying tax on sales, rather than profits, which could lead to double taxation.
The furore over the French digital tax has added to trade tensions between the US and the EU, which are already strained by Mr Trump’s threat to impose sweeping tariffs on imported cars and car parts, on top of existing levies on European metals.
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