Is France Launching An Unfair Trade Practice Our Way?

Is France Launching An Unfair Trade Practice Our Way?

There are measures across the globe to prevent unfair trade practice. France is planning a “digital services” tax which looks like it’s targeting some of the US tech giants.

Trump has directed an investigation to find out if the tax is an unfair practice that could result in tariffs or other retaliatory measures later on.

Many have criticized Trump for not taking the initiative on countries where he has friendships. Although Trump and Macron have been friendly, it doesn’t mean that Trump is going to stand by and watch France impose an unfair tax that could crush various tech companies across the United States.

What are the taxes?

The taxes aren’t anything that’s new. In fact, France and a variety of other countries have considered taxing services that are offered by various digital companies – including Google, Amazon, Facebook, and others.

The office of the USTR, however, says that the services covered are by firms located in the United States and that are global leaders. The structure of the proposed tax could easily be unfairly targeting the tax at tech companies that are based in the United States. It could cause the US tech companies to take a considerable hit, affecting the US economy as a whole.

The French senators will be voting on the tax on Thursday. It would be a 3 percent tax if the worldwide revenue exceeds 750 million euros, which translates to $840 million. If the revenue exceeds 25 million in France, it would be about $28 million.

Robert Lighthizer, the US Trade Rep, threatened to take action against France last month if they go forward with imposing the tax.

Essentially, the three percent tax would be levied on sales that are generated in France. Anyone who uses services provided by Amazon, for example, would be generating sales.

Those sales are then taxed so that Amazon would end up with a huge tax bill at the end of the year. Of course, most of the companies being taxed would be from the US because that is where all of the tech giants reside.

Praising the Administration

This is one move that Trump and his administration are being praised for. Republicans and Democrats alike on the two Congressional tax-writing committees are applauding the action here.

Ron Wyden (D-Oregon) and Chuck Grassley (R-Iowa) issued a joint statement to say that the United States wouldn’t need to take this path if other countries would stop making such unilateral actions.

What’s Next?

If the French do, in fact, impose the tax, the USTR is already looking at Section 301 of the US Trade Act of 1974 to find out what retaliatory tariffs can be made in response. This would allow the United States to circumvent going through challenging the tax at the World Trade Organization.

The problem is that the lower French parliament chamber has already approved the tech tax. Now, French officials are trying to get the tax adopted across the European Union. They aren’t garnering enough support, which is why there is going to be another vote on it.

There have been plenty of business associations and tech industry officials to warn that the tax threatens innovation. After all, what company would want to get involved in the world of technology if they know they would be having an extra tax imposed on them?

The Internet industry has been one of America’s great exports, a trade group known as the Internet Association, explained. Any of the global tax rules need to be updated for the digital age.

There is a proper approach to do this. However, placing discriminatory taxes against United States firms is not the correct approach to take.

France isn’t the only country considering such taxes, either. The UK, Hungary, and various South American countries are considering it as well.

The OECD (Organisation for Economic Co-Operation and Development) is currently working to develop a multilateral agreement for 2020, involving over 100 companies.

This is something that US officials and tech companies have already chosen to support. If France wants to impose a tax, they should wait to see what the OECD can come up with.

Otherwise, in the midst of tax wars with China, France may get added to the mix. It could get ugly before it gets better, which isn’t something that anyone wants to deal with. It can also have a negative impact on the various US tech companies in terms of their services offered, their income, and the hundreds of thousands of jobs that they offer across the country.

However, for the United States to succeed in the long run it must find ways to balance the trade relationships with Countries that have for decades taken advantage of the US. A little pain today will go a long way.

editor

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