France will not back down on digital tax despite US legal threats

Patrick Wintour Diplomatic editor
Photograph: Benoît Tessier/Reuters

France will not back down in the face of US threats of legal action over its plans for a digital tax on tech giants, the French finance minister has said.

“We will never give up,” Bruno Le Maire told the Guardian in an interview. “We are implementing a digital tax on digital giants because we think it is a fair and efficient way of taxing them.”

Le Maire said Paris would only change course if a better deal for taxing the firms could be agreed internationally. He said he hoped the G7 finance ministers’ meeting hosted by France on Wednesday in Chantilly would be able to find a compromise that could pave the way for a wider subsequent agreement at the level of the Organisation for Economic Co-operation and Development. The 184-nation OECD oversees international tax structures.

He said he hoped the G7 would agree in principle to a corporation tax “corridor” – minimum and maximum tax rates – but it was unlikely such rates would be set at Wednesday’s meeting.

“If we are not able to find a compromise amongst seven I do not how we will able to find a compromise amongst 184 countries,” he said.

“We have made clear from the very beginning that as soon as there is a compromise adopted at the OECD level, we will withdraw our national taxation but so long as there is no international solution we will implement our national solution.”

With the US threatening unprecedented legal action against France over its pioneering digital tax, passed last week by the French legislature, the minister told Washington that sanctions and retaliation were not the right course.

The dispute over digital tax could turn into a fresh source of transatlantic conflict. The US Treasury opened an investigation following the passage of the French legislation and accused Le Maire singling out successful US tech firms and breaching principles of double taxation.

In his Guardian interview, Le Maire insisted he would not back down on the principle of ensuring the digital giants were taxed equally, one of the themes of the current French G7 presidency.

Digital firms pay less tax partly because it is harder to determine where on the internet their revenue has been truly generated, especially if the firms can artificially shift profits to lower tax countries such as Ireland.

Known as the Gafa tax – an acronym for Google, Apple, Facebook and Amazon – the legislation imposes a 3% levy on the total annual revenues of the largest technology firms providing services to French consumers.

Le Maire said: “We have been working on this digital tax for more than two years at EU level, and, unfortunately, we have not been able to find a compromise with the other EU member states because four states – Ireland, Denmark, Finland and Sweden – opposed this. That is why we finally decided to go ahead at national level.

“But I want to record that we are a sovereign nation and we take our decisions relating to taxation as a sovereign nation, and we will continue to do that.”

He insisted there was no element of anti-US discrimination in the French plan since companies from many different countries came within the scope of the French tax, including from France itself and from China.

“Nobody can understand either in Europe or the US that the internet giants do not pay the same level of tax as other private companies – 14 points less taxation for the digital giants compared to the other private companies, including the SMEs [small and medium enterprises],” he said.

“Everyone is aware there is a new business model that profits from the collection and selling of data. We have to have a fair tax system for this new model.”

He denied this was double taxation, citing the assessment of the European commission that as much as €750m (£680m) of digital revenues remained untaxed.

And he warned the US not to press ahead with legal action against France. “We are close allies and between allies the best way of sorting out difficulties is not to enter into the logic of sanctions and retaliation. The best way is together around the table to seek compromises, and that is exactly what I intend to do with my counterpart, with the Treasury secretary, Steven Mnuchin.”

Although Le Maire has often led the call for Europe to resist US dominance by strengthening its own economic sovereignty, he insisted this was not part of a fightback against the dollar’s power. “It has nothing to do with the sovereignty of Europe. It has to do with the economic model of the 21st century – that is the key question.

“Where is the value created? We are all aware that the value is created by the collection and selling of a massive amount of data. There is a huge loophole in the international taxation system, and we just want to fill the gap.”

The UK and other states are due to adopt similar plans to the French, raising the prospect of a multiplicity of national tech taxes in Europe, which might encourage the tech firms to cooperate more at OECD level.

Le Maire described US proposals to the OECD as an “interesting starting point” for a broader discussion about taxation of multinationals, but either way he said there was a specific problem about digital giants.