US Prepares To Defer Tariffs On French Goods If France Refrains From Digital Taxes on US Tech Firms

The U.S. government said on Thursday that it planned to defer the imposition of tariffs on various French goods as long as France refrained from assessing digital taxes on U.S. tech giants like Alphabet’s Google (GOOGL), Apple (AAPL), Facebook (FB) that operate in Europe.

U.S. Trade Representative Robert Lighthizer and other officials think that the French digital tax discriminates against U.S. tech companies.

In June, the U.S. withdrew from international talks involving the Organization for Economic Cooperation and Development to resolve the digital services taxation issue when negotiations stalled.

“We’re going to announce that we’re going to be taking certain sanctions against France, suspending them like they’re suspending collection of the [digital] taxes right now,” Lighthizer said.

Reuters reported that the USTR may unveil plans to slap tariffs on at least $500 million worth of French goods – but defer implementation.

Late last year, USTR warned it might press tariffs of up to 100% on $2.4 billion in French imports, including champagne, handbags and cheese, after determining that the French digital tax may hurt U.S. tech companies.

The OECD has been attempting to seek a solution to how multinational companies – especially tech corporations – should be taxed around the world in the digital age.

However, it is unlikely that France will yield to any pressure from the U.S.

“France’s response [to the threat of tariffs] will be unchanged,” said Frances Finance Minister Bruno Le Maire. “If there is no international solution by the end of 2020, we will, as we have always said, apply our national [digital tax.”

Le Maire will reportedly speak to Lighthizer by phone on Friday.

“We call on the U.S. to return to the OECD negotiations on taxing digital giants,” Le Maire said. “Sanctions are not a way of operating between countries that are friends, as the U.S. and France are.”

On Friday, the EU also urged the U.S. to return to the negotiating table.

“We remain committed to ensuring that all businesses, including digital ones, pay their fair share of tax where it is rightfully due,” said an EU spokesman.

In May, LeMaire insisted that the digital tax became even more urgent in light of the destructive economic impact of the covid-19 pandemic.

“Never has a digital tax been more legitimate and more necessary,” he said. “In any case, France will apply as it has always indicated a tax on digital giants in 2020 either in an international form if there is a deal [among OECD] or in a national form if there is no deal.”

Under present international tax rules, multinationals usually pay corporate income tax where their production sites are located rather than where their consumers are based. But European governments have asserted that since tech companies derive income from users located across the world, they should be taxed according to the taxes of those countries.

A number of countries outside of France, including Austria, Spain, Hungary, Italy, Turkey and the U.K. -- have also unveiled their own plans for a digital services tax, or DST. But these tax regimes vary greatly from one another,

For example, in Austria and Hungary, taxes would be applied only to revenues generated from online advertising, while France will slap taxes on a broader array of activities, including targeted advertising, and the transmission of data, among others.

The tax rates also vary widely -- from 2% in the UK to 7.5% in Hungary and Turkey. France’s digital tax rate stands at 3%. France has however agreed to suspend the collection of the DST until December 2020 as long as the U.S. agrees to avoid retaliatory tariffs on French imports.