Business

France agrees to delay new tax on tech giants

Eiffel tower and mobile phone Image copyright Getty Images

France has agreed to delay collecting a new tax on multinational technology firms until the end of 2020, a French government official has told the BBC.

The digital services tax has provoked an angry response from Washington.

The US had threatened to impose retaliatory tariffs on $2.4bn (£1.8bn) of French goods, including champagne and cheese, after the tax was passed in July 2019.

The US will not introduce extra import taxes this year, the official said.

The rapprochement was the result of a conversation between President Trump and President Macron on Monday.

Global tech giants including Google, Apple, Facebook and Amazon would have been due to make tax payments equivalent to 3% of their French revenues in April and then again in November.

France, along with several other European countries, pushed ahead with its own digital sales tax while it waited for a multilateral agreement about how such firms should be taxed to be drawn up by the Organisation for Economic Cooperation and Development (OECD).

If the OECD reaches a deal by the end of 2020, then France's unilateral tax will not be applied at all. If there is no multilateral agreement by then France will collect the two tranches of the tax.

Payments were already collected in November for 2019 on revenues from July. Those are still subject to final adjustments but will not be refunded under this agreement.

UK stance

Meanwhile, the UK is planning to push ahead with its digital services tax despite a warning from the US that it could face tariffs if it does so.

US Treasury Secretary Steve Mnuchin told the Wall Street Journal that he hoped the UK and Italy would suspend their plans after a truce was reached with France.

But a UK Treasury spokesperson told the BBC: "We are fully engaged in international discussions to address the challenges digitalisation poses for tax. Our strong preference is for an appropriate global solution.

"We've committed to introduce our Digital Services Tax from April 2020. It will be repealed once a global solution is in place."

What is a digital sales tax?

France, along with several other European countries, wants to limit the tech giants' ability to avoid taxes.

Many governments are concerned that US technology giants are avoiding taxes in the European Union. They argue taxes should be based on where the digital activity - browsing the page - takes place, not where firms have their headquarters.

The UK, Italy, Austria and Turkey are all considering imposing new levies themselves.

But trade officials in Washington say US firms are being unfairly targeted.

Microsoft President Brad Smith welcomed the news that France and the US had come to an agreement, and said the company supported the idea of an OECD-backed global agreement.

"I think that it does make sense for big tech companies to pay appropriate taxes wherever we do business," he told the BBC's Talking Business programme.

He said big tech firms should "find common ground" on issues such as tax reform, so that they ended up paying taxes that national governments consider to be fair.

On Monday, Apple's chief executive Tim Cook backed the push for an overhaul of the global tax system.

"I would certainly be the last person to say that the current system or the past system was the perfect system. I'm hopeful and optimistic that they (the OECD) will find something," Mr Cook said.

More on this story