France’s President Emmanuel Macron gestures during the meeting with US President Donald Trump, ahead of
French President Emmanuel Macron and his US counterpart Donald Trump on Tuesday appeared unwilling to lay down their arms in an escalating spat over Paris’s plans for a special tax on digital service companies and Washington’s threat to retaliate with massive tariffs on French imports.
The United States on Monday threatened to impose duties of up to 100 percent on imports of champagne, handbags and other French products worth $2.4 billion after a US government investigation found that France’s new digital services tax would harm US technology companies such as Google, Apple, Facebook and Amazon.
In London for a NATO summit, Trump and Macron exchanged a tight-gripped handshake before both said they hoped they could smooth out their differences over the increasingly inflammatory issue.
But neither seemed particularly willing to back down on their respective threats.
“They’re American companies. They’re tech companies. They’re not my favourite people, but that’s OK, I don’t care, they’re American companies. And we want to tax American companies. It’s not for somebody else to tax them,” Trump said, acknowledging a “minor dispute” between the two leaders.
“So it’s either gonna work out, or we’ll work out some mutually beneficial tax,” he said, referring to the levy threat. “And the tax will be substantial. I’m not sure it’s gonna come to that, but it might.”
Macron, meanwhile, said that while he hopes to “settle this situation with President Trump”, he remains “determined to defend the interests of our country and of Europe”.
The spat marks a new low in testy relations between Trump and Macron, who have been at odds over the American president’s unilateralist approach to trade, climate change and Iran.
The United States has already imposed 25 percent duties on French wine and cheese as part of its WTO-sanctioned response to illegal EU aircraft subsidies, a move exporters said would penalise US consumers while severely hurting French producers.
International solution
France’s 3 percent levy applies to revenue from digital services earned by companies with more than €25 million of revenues from France and €750 million worldwide.
An investigation by the US Trade Representative’s office found the French tax was “inconsistent with prevailing principles of international tax policy” and that it was “unusually burdensome” for US companies.
France is not alone in targeting big digital companies — a growing number of other countries are preparing their own taxes.
Governments, including Washington, are frustrated that big digital companies can book earnings in low-tax countries such as Ireland regardless of where the end client is.
France says it will drop its digital tax as soon as an agreement is found at the Organisation for Economic Cooperation and Development to overhaul decades-old international tax rules.
Shares in French luxury companies fell in response to the tariff threat against French champagne, handbags, cheeses and other products.
French products will not face tariffs immediately as the US Trade Representative still intends to gather public comments and hold a public hearing in January.
Based on past experience of Section 301 tariffs, primarily applied to Chinese goods, France would face punitive tariffs in two or three months.
Any retaliatory action from France would have to be taken at an EU-wide level because the bloc is a customs union which applies duties at its border.
