The precedent-setting tax was described by the U.S. Trade Representative’s Office as “unreasonable.” The office opened a public comment period up to new French tariffs and other trade restrictions, which closes on Aug. 26, just before the G-7 summit in Biarritz, France.
The French Senate approved a 3 percent levy in July that would apply to digital services revenue earned in France by companies with more than 25 million euros in French revenue and 750 million euros ($838 million) worldwide.
Gary Sprague of Baker & McKenzie, along with members of the tech community, will represent digital companies set to be affected by the legislation like Airbnb, Amazon, Expedia, Facebook, Google, Microsoft, Salesforce, Stripe and Twitter.
In a retaliatory move, President Donald Trump threatened to tax French wines. The administration said “France’s unilateral measure appears to target innovative U.S. technology firms that provide services in distinct sectors of the economy.”
Additional EU countries like Austria, Spain and Italy, as well as Britain have also discussed potential digital taxes. They cite concerns that the massive, global firms bank serious profits in low-tax countries despite their gains.
In a written testimony for the USTR hearing, Amazon’s international tax policy director Peter Hiltz, said more than 10,000 French-based small- and medium-size businesses selling on Amazon were notified that certain fees will increase by 3 percent for sales made on Amazon.fr starting Oct. 1. He also mentioned U.S. products sold in France would incur a tax.
Facebook global tax policy head Alan Lee’s testimony said that the tax “poses difficulties for Facebook’s business model and will hinder growth and innovation in the digital economy” and would require a re-construction of its systems. Lee believes the inclusion of the tax will take time and resources to capture data for audit purposes.
Nicholas Bramble of Google’s trade policy counsel said in their written testimony that France’s tax is “a sharp departure from long-established tax rules and uniquely targets a subset of businesses” and is “likely to generate disputes on whether specific digital activities were ‘supplied in France’ or in another region.”
In a recent statement from the Google's vice president of government affairs and public policy, Karan Bhatia, the company expressed support for modernization of digital regulation, affirming its contribution to the communities where they work. However, Bhatia said reform must reflect fair business practices.
"We hope governments can develop a consensus around a new framework for fair taxation, giving companies operating around the world clear rules that promote a sensible business investment," Bhatia said.
He feels that a comprehensive multilateral approach was necessary for tech companies to continue providing uninterrupted service, while governments monitor the system in a reasonable way. The current unilateral proposal and the ones like it is obsolete and potentially harmful, he said.
"That kind of race to the bottom would create new barriers to trade, slow cross-border investment, and hamper economic growth."
Jennifer McCloskey, vice president for policy at Information Technology Industry Council, will testify at the hearing on behalf of Amazon, Facebook, Apple, Google and the others, saying the tax would affect manufacturers and consumers and “represents a troubling precedent, unnecessarily departs from progress toward stable long-lasting international tax policies and may disproportionately impact U.S.-headquartered companies.”
The companies combined saying the tax, although seemingly small, “is unjustifiable in that it infringes international agreements, and unreasonable in that it is discriminatory, retroactive and inconsistent with international tax policy principles.”
As Europe faces threats of recession and Britain prepares for its potentially disruptive departure from the European Union, the tech giants are expected to fight for their sites’ profit and argue in favor of the small- and mid-level business that barter on their platforms.