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France to Tax Facebook, Google In Spite of U.S. Trade Threat

William Horobin and Helene Fouquet

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France won’t back off from its planned tax on companies like Facebook Inc. and Alphabet Inc.’s Google even after the U.S. suggested it may use trade tools against the levy.

The French Senate passed a bill on Thursday to impose a 3% tax on global tech companies with at least 750 million euros ($845 million) in worldwide revenue and digital sales totaling 25 million euros in France. The U.S. said Wednesday that it will examine whether the tax would hurt its tech firms, using the so-called 301 investigation, the same tool President Donald Trump deployed to impose tariffs on Chinese goods because of the country’s alleged theft of intellectual property.

France said the digital tax is in keeping with international rules, and that it won’t accept the use of trade tools to try to thwart it.

“I deeply believe that between allies we can and must resolve our differences in ways other than with threats,” Finance Minister Bruno Le Maire said in a speech in the Senate. “France is a sovereign state that decides its tax measures with sovereignty and will continue to take sovereign tax decisions.”

With the passage of the bill, France will become the first country in the European Union to impose such a levy, with other nations, including the U.K. and Germany, mulling similar taxes. A broad, EU-wide digital tax failed to garner a consensus in the 28-nation bloc this year, with France among the biggest advocates of a region-wide tax on tech companies’ revenue from digital advertising, user data sales and the like -- the so-called GAFA tax (after Google, Apple Inc., Facebook and Amazon.com Inc.).

The British government is proposing a 2% tax on “the revenues of search engines, social media platforms and online marketplaces which derive value from U.K. users” to come in to force from April 2020, according to its draft finance bill published Thursday.

Related Story: Threat of Legal Challenges Hangs Over French Digital Tax

First Investigation

The French law, which goes into effect retroactively as Jan. 1, 2019, targets about 30 companies around the world. While most of them would be American, the list would also include Chinese, German, U.K. and even French firms. It would affect companies that profit from providing digital services to French users.

President Emmanuel Macron has two weeks to sign off or seek changes to the law. French presidents rarely modify laws once they are passed by parliament. It has only happened three times in the last 40 years.

Le Maire said he spoke to U.S. Treasury secretary Steven Mnuchin Wednesday, and noted that it’s the first time in the history of relations between the two countries that Washington has opened a 301 investigation against France.

Trade Tensions

The passage of the tax bill and the U.S. investigation threaten to further strain trans-Atlantic ties as the two sides prepare to negotiate a limited trade agreement on industrial goods. The French government has in the past asked the U.S. to work with Europe at the OECD for a “fair digital tax.”

Those OECD talks have accelerated in recent months. Le Maire reiterated that France would abolish its revenue tax if an OECD accord is reached. In May, the minister said he was optimistic for an agreement this year.

“My message to our American partners is that (the tax) should encourage them to accelerate even more the work on an international digital tax solution at the OECD level,” Le Maire said Thursday.

Meanwhile, the U.S. said its Trade Representative Robert Lighthizer will have as long as a year to examine whether the French tax plan will hurt U.S. technology firms, and suggest remedies.

The U.S. is concerned that the tax “unfairly targets American companies,” Lighthizer said in a statement announcing the action on Wednesday. “The president has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”

The U.S. can levy tariffs specifically on products from France even though it is a member of the EU, said Douglas Heffner, a international trade litigator at law firm Drinker Biddle & Reath. Under Section 301 of the Trade Act of 1974, the president has authority to impose tariffs or take other restrictive measures if it’s determined that a foreign country’s trading rules are damaging to U.S. businesses.

G7 Meeting

“The U.S. can be very creative,” Heffner said. “They don’t have to just go after digital products. They can go after products where they have leverage.”

The move would come as talks on a limited trans-Atlantic trade agreement on industrial goods have progressed slowly because the U.S. and EU are at odds over whether to include agriculture in any final agreement. France is the country most adamantly opposed to making any agriculture concessions. Trump’s threat to impose a tariff of as much as 25% on European car exports has cast a cloud over the negotiations as well.

Finance ministers and central bankers at a Group of Seven meeting in Chantilly, France, next week will discuss international taxation and competition and the digital economy.

(Updates with OECD accord details in 10th and 11th paragraphs.)

--With assistance from Jenny Leonard and Laura Davison.

To contact the reporters on this story: William Horobin in Paris at whorobin@bloomberg.net;Helene Fouquet in Paris at hfouquet1@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Vidya Root

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