Facing economic woes, domestic revolts and street protests at home, the French government recently announced they would impose a retroactive tax, effective on January 1, 2019, targeting American-based multinational tech companies like Google, Amazon, Facebook and Apple.
This is an unprecedented attack on American companies which would impose a 3 percent tax on revenues generated in France. The French government believes individual users – French citizens – create value for these companies and therefore the tax is justified.
Bruno Le Maire, the French finance minister, had warned France would act unilaterally if neighboring countries couldn’t agree on a European Union-wide digital tax by the end of March. Yet, in early March, an impatient Le Maire suddenly accelerated that timeline and added a new retroactive feature (so much for tax planning). In a radio interview he declared, “It’s time for these companies to pay the taxes that they owe.”
The digital tax is expected to raise approximately $568 million for the French government in 2019. The move obviously has as much or more to do with French domestic turmoil than high-minded concerns about global tax fairness.
Facing the street protests of the yellow vest movement, the French government hopes to use the ingenuity of American tech companies as an emergency bailout fund. France announced an $11.4 billion emergency stimulus program that is designed in part to pacify protestors. The money has to come from somewhere, the French seem to believe, so why not American tech companies?
It’s worth noting that France’s economic predicament and social turmoil, which is forcing the country to search for more ways to unsuccessfully tax its way to prosperity, should be a warning to upstart socialists here at home who seem determined to forget the lessons of the 20th century and force a new generation of Americans to experience the cruelties of socialism firsthand. Yet while such an epiphany is unlikely, Republicans and Democrats should send a clear signal that France’s action is unacceptable.
A global problem
France is creating not just an American, but also a global problem. The move poses a new danger to worldwide economic growth and tech-fostered innovation. France is ignoring the principle that if you want less of something, you tax it. The world needs more tech innovation, not less.
This is especially true for countries -- like France -- with safety nets they can’t afford. France’s actions could also lead to new trade barriers and a cycle of retaliation that would hurt Europe and the United States.
American-based tech giants know some form of taxation is coming in Europe but they rightly want to avoid arbitrary hold-ups and shakedowns. The Organisation for Economic Cooperation and Development (OECD), which includes 36 member countries from Europe and other developed nations, is on point to propose tax rules for digital commerce by 2020. The OECD’s mission is to promote trade and economic growth.
The Trump administration is actively engaging with the OECD and is unhappy with France’s behavior. In a recent Ways and Means Committee hearing, I asked Treasury Secretary Steven Mnuchin about France’s retroactive tax. He replied, “Digital taxes aimed at U.S. companies are unfair and we won’t put up with that.”
As a former state treasurer, I understand the complexities of capturing revenue in a way that’s fair, realistic, sustainable and predictable. France’s actions don’t meet any of those tests. Rather than acting alone, France should work within the OECD and create tax rules that will help all OECD countries thrive.
As the OECD grapples with digital commerce, its past should inspire the future. The OECD has its origins in the Marshall Plan, when American foresight and generosity helped rebuild France and the rest of Europe. At that time, a Frenchman, Robert Marjolin, was responsible for dispersing the aid package through an entity called the OEEC. Prior to becoming the present-day OECD, the Marjolin-led OEEC promoted economic growth, stability and helped the West secure peace following World War II and win the Cold War.
In the 21st century, the economic ties between France and America should be strengthened, not frayed. We built the post-war economy together. In the digital age we should target growth, not each other.
Rep. Ron Estes, R-Kansas, has represented Kansas’ 4th congressional district in the U.S. House of Representatives since April, 2017. He is a member of the U.S. House Committee on Ways and Means.