US, France seek compromise to avoid digital tax on tech giants

The Trump administration has said the tax unfairly targets American companies

The U.S. and France gave themselves two weeks to find a compromise on the taxation of digital services in hopes of avoiding an all-out trade war.

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Both countries have been at odds over a French law, passed over the summer, that imposes a 3 percent tax on digital revenue generated by large tech companies, including Google, Apple, Facebook and Amazon. Although French President Emmanuel Macron has argued the law is necessary to prevent tech companies from avoiding taxes, the Trump administration has said it unfairly targets American companies and threatened to retaliate with $2.4 billion in tariffs on French products.

The tax hits companies that are worth at least 750 million euros ($834 million) globally and 25 million euros in France. It will be retroactively applied from early 2019 and could generate up to 400 million euros per year, according to the French government.

“We have given ourselves 15 days until our next meeting on the margins of the Davos summit at the end of January,” French Finance Minister Bruno Le Maire said Tuesday in Paris.

TECH GIANTS COULD FACE HEFTY TAX BILL UNDER NEW OECD PROPOSAL

The French minister told reporters that he spoke with Treasury Secretary Steven Mnuchin over the phone, and said they agreed to seek a compromise about digital taxation that fell within the parameters of the Organization for Economic Co-operation and Development.

Le Maire and Mnuchin will meet at the World Economic Forum in Davos, Switzerland, which takes place Jan. 21-24, at the end of the self-imposed 15-day deadline.

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If the two countries are unable to reach an agreement, the U.S. has vowed to hit France with tariffs as high as 100 percent, targeting sparkling wine, cheese and makeup. The EU has said it would respond with its own tariffs if Washington follows through.

Separately, the OECD has been working toward overhauling the global tax system, including proposing a rule that would give countries the ability to tax digital companies based on sales, rather than physical presence.

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The rules would apply to companies with annual revenues of more than $830 million in “consumer-facing industries,” which includes big tech companies and other firms that sell services and goods to consumers.