In an unusual move that threatens to worsen trade tensions with Europe, the Trump administration said it will investigate whether a proposed French tax on tech companies discriminates against U.S. businesses, a step that could lead Washington to impose trade penalties.
The investigation illustrates growing alarm among U.S. officials and industry executives about the prospect of new taxes on technology giants spreading beyond France. A number of other countries are considering similar levies, on the belief that wealthy U.S. tech giants aren’t paying enough in taxes worldwide.
“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies,” U.S. Trade Representative Robert E. Lighthizer said in a statement Wednesday as his office announced the probe. “The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”
French officials didn’t immediately provide comment.
The French levy would impose a 3 percent tax on certain revenue that large tech companies earn inside France. Legislators call it a tax on Les GAFA — the acronym for Google, Amazon, Facebook and Apple — companies that France has accused of paying insufficient income tax.
The measure is close to passing both houses of Parliament and could soon be signed by President Emmanuel Macron, who has voiced support for the tax.
“The fact that these companies pay less tax than a cheese producer in Quercy is a real problem,” French Finance Minister Bruno Le Maire, a vocal proponent of the measure, said in an April 3 interview with Le Parisien.
A tech industry trade association on Wednesday welcomed the U.S. probe and criticized the French plan, saying that tax disputes should be settled through a multilateral negotiation currently being led by the Organization for Economic Cooperation and Development.
"We support the U.S. government’s efforts to investigate these complex trade issues but urge it to pursue the 301 investigation in a spirit of international cooperation and without using tariffs as a remedy. We also again call on France and other countries considering unilateral actions to withdraw individual measures and recommit to the ongoing, multilateral OECD process,” said Jennifer McCloskey, vice president of policy at the Information Technology Industry Council, whose members include all the major tech companies.
Amazon on Wednesday called the U.S. probe “an important step toward successfully addressing the poorly constructed, discriminatory French [tax], which if implemented, will cause significant harm to American and French consumers alike.”
“We applaud the Trump Administration for taking decisive action against France and for signaling to all of America’s trading partners that the U.S. government will not acquiesce to tax and trade policies that discriminate against American businesses,” Amazon said.
(Amazon founder and chief executive Jeff Bezos owns The Washington Post).
Google defended its global tax payments and voiced support for a new “comprehensive and multilateral agreement” on tax, rather than “discriminatory unilateral taxes.”
Facebook and Apple declined to comment.
If the French tax comes into force, it could be the first of many. Italy, Austria, Poland, the Czech Republic and New Zealand are also considering digital services taxes. As governments around the world grapple with budgetary constraints and growing unease about income inequality, the profitable tech industry is looking like an appealing solution, economists and tax experts say.
“This is a tough moment for public finance in several E.U. member states,” said Pasquale Pistone, academic chairman of the tax research foundation IBFD in Amsterdam. “Public opinion is very sensitive to this, so the politicians want to show they do something about this.”
In a September 2017 speech, shortly after his election, Macron said France “cannot accept having European actors who must pay tax, while their international counterparts do not, and digital actors who pay no tax competing with traditional economy actors who do pay tax.”
Last year, heated protests erupted across France as citizens wearing bright yellow vests objected to a new gasoline tax. The movement increased pressure on Macron to raise revenue elsewhere, analysts said.
“Those people are saying, it’s no longer possible to ask poor people to pay taxes while Google is paying none,” said Daniel Gutmann, a law professor at the Sorbonne and a partner at CMS Francis Lefebvre Avocats. “It’s been a highly sensitive issue in the global debate on justice and tax.”
A 301 investigation could lead the United States to impose penalties on France, such as tariffs on French imports, though it could also result in no retaliation. The office of the trade representative said Wednesday that Section 301 gives it “broad authority to investigate and respond to a foreign country’s unfair trade practices.”
The 301 investigation into China, opened in 2017, led the Trump administration to begin imposing steep tariffs on imports as punishment for what the United States calls China’s unfair trade practices.
David J. Lynch contributed to this report.