France defiant as digital dispute set to tax G7 ministers

France defiant as digital dispute set to tax G7 ministers

Chantilly (France) (AFP) – France was defiant as a row over taxing tech giants threatened to overshadow a meeting of G7 finance ministers that gets under way near Paris on Wednesday.

French Finance Minister Bruno Le Maire was set to meet directly with his US counterpart, Treasury Secretary Steven Mnuchin, as the two countries are hurtling towards a confrontation over plans by Paris to ensure it gets a slice of what tech companies earn selling digital services to French customers.

Le Maire set a defiant tone ahead of the meeting, saying France would not back down its plans to impose a three percent tax on revenue that tech firms earn from French sales, despite the threat of US retaliation.

“The possibility of US sanctions against France exists,” Le Maire said on France Inter radio several hours before his meeting with Mnuchin. “There is a legal instrument for that and clearly there is the political will.”

France became the first major economy to impose such a tax last week when legislators gave their final approval, while Britain unveiled legislation last week and Spain said Wednesday it would move forward once a new government is in place.

While the measure does not specifically target US internet giants, the French commonly call it the GAFA tax, an acronym for Google, Amazon, Facebook and Apple.

– Section 301 –

Even before the final vote by French lawmakers, the US announced it was opening a so-called Section 301 investigation into the measure.

A Section 301 investigation was used by the Trump administration to justify tariffs on China. 

Washington and Beijing have lashed out at each other with punitive tariffs on about $360 billion in goods in a trade dispute that has roiled global financial markets and undermined business confidence.

But Le Maire said: “France will not back down on the introduction of its national tax. It was decided upon, it was voted upon, it will be applied from 2019.”

He said he would explain to Mnuchin “that it is in the interest of the United States to put into place a tax on that new economic model that relies on creation of value from data and that we don’t want to target US companies”.

Work has been under way for several years on a reform of the international tax system to ensure that multinationals are not able to escape paying taxes in countries where they do large amounts of their business.

France and Britain, which also moved forward last week by introducing legislation for a similar tech tax, have indicated their perference for an overarching deal via the Organisation for Economic Cooperation and Development (OECD) and the G20, and they would abandon tech taxes if an agreement is reached.

Faced with the risk of individual nations imposing taxes, the United States unblocked the OECD talks at the beginning of the year, but progress remains slow.

“There are still too many multinationals that escape paying taxes. It’s revolting,” said Le Maire.

– Libra not liked –

A number of other thorny issues await G7 ministers when they begin their annual meeting later Wednesday in Chantilly, north of Paris.

Among them are plans by Facebook to launch a virtual currency called Libra, which has stoked concerns among regulators in numerous countries about regulation and market oversight of cryptocurrencies.

“We’ll reiterate our intention not to allow a private company to acquire the elements of monetary sovereignty,” a French official told AFP last week on condition of anonymity. 

Le Maire has publicly voiced his concerns about Libra, a virtual currency to be backed with a basket of real-world currencies that Facebook says will facilitate online financial transactions.

The ministers are also expected to discuss who will take over at the International Monetary Fund after Frenchwoman Christine Lagarde was named to head the European Central Bank. The IMF post has traditionally been held by a European.

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