Trump escalates fight over tax on tech giants

The long-running fight between the U.S. and Europe over how to tax American tech giants is heating up.

The Trump administration on Monday proposed retaliating against France for a tax on digital services, floating $2.4 billion in tariffs, and Paris is vowing to hit back. 

The dispute is raising pressure on international negotiators to develop a framework for taxing tech companies whose businesses span the globe. But as the complicated talks unfold, the U.S. is threatening to launch more investigations.

“USTR’s decision today sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on U.S. companies,” Robert Lighthizer, the U.S. trade representative (USTR), said on Monday.

The majority of the roughly 30 businesses that could be affected by digital taxes are based in the U.S., including tech giants Amazon, Google and Facebook.

Tensions between the U.S. and European countries over taxes on American tech companies have existed for a number of years. European policymakers have argued that the tech companies have not paid enough in taxes in their countries, while U.S. policymakers on both sides of the aisle have argued that Europe is trying to unfairly target American businesses.

Commerce Secretary Wilbur Ross on Tuesday claimed the European Union is going after digital services because the region harbors a “tremendous jealousy” of Silicon Valley. 

“Europe doesn’t have the real high-tech champions and the real e-commerce champions that we do,” Ross said on CNBC. 

In one notable case in 2016, the European Commission, the EU’s executive body, ruled that Apple owes Ireland billions of dollars in unpaid taxes. Apple and Ireland, which has a low corporate income tax rate, are challenging the ruling.

Last year, the European Commission floated having an EU-wide digital services tax, but the countries in the EU weren’t able to reach an agreement. Because of a lack of consensus, individual European countries have started to consider imposing their own digital taxes. 

The tech industry has pushed back aggressively at all efforts to impose digital taxes on a region-by-region basis, claiming that it would be unfair to “double-” or “triple-tax” U.S. companies offering free services around the world. 

CompTIA, a tech trade group, said in a statement that its membership “strongly opposes the [digital services tax] and those proposed like it.”

“This discriminatory tax targets many of the world’s most innovative companies by taxing their profits twice and will ultimately harm job and economic growth in France and elsewhere,” said Cinnamon Rogers, CompTIA’s executive vice president of advocacy. 

Earlier this year, France became the first European country to adopt and implement a tax on revenues generated by providing digital services in its country. France’s 3 percent tax applies only to companies with a large amount of revenue from digital services, and it applies retroactively to the start of 2019. Several other European countries are in the process of adopting or implementing their own digital services taxes. 

The Trump administration became concerned about the French tax even before it was signed into law. In July — after France’s Parliament agreed on a final bill but before French President Emmanuel Macron signed it later in the month — the USTR launched an investigation into whether the French tax is discriminatory and burdens U.S. commerce. 

On Monday, the USTR announced that it found the French tax to be discriminatory and proposed tariffs of up to 100 percent on French products such as sparkling wine, cheese and handbags.

Lighthizer also said that the administration is looking at whether to start investigations into digital taxes that have advanced in Austria, Italy and Turkey.

The fight has made for strange bedfellows. Trump and U.S. lawmakers have at times been critical of the large tech companies that are affected by France’s digital tax, including Google and Facebook, which the president claims have exhibited bias against conservatives. But the president and politicians on both sides of the aisle have taken the tech companies’ side in the fight over digital taxes.

“The tech companies you’re talking about, they’re not my favorite people because they aren’t exactly for me, but that’s OK,” Trump said Tuesday at a meeting with Macron on the sidelines of the NATO summit in London. “I don’t care. They’re American companies. And we want to tax American companies. … That’s important. We want to tax them. That’s not for somebody else to tax.”

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and ranking member Ron Wyden (D-Ore.) issued a joint statement on Monday saying they welcomed the USTR’s report.

Wyden said Tuesday that “what we’re trying to do is protect American jobs in the face of French protectionism.”

The Organization for Economic Cooperation and Development (OECD) has been working to develop solutions to address tax challenges in the digital economy. The group, which includes the U.S. and France, is aiming to reach an agreement by the end of next year in order to prevent more companies from acting unilaterally. 

The tech industry has thrown its support behind the OECD process, which will help them avert the prospect of facing separate taxes from a variety of countries. 

“I’d just hope that with the stakes being as clear as they are, this sense that there could be a multiyear conflict around all of this, that just puts the OECD negotiation appropriately in the correct light,” said Jennifer McCloskey, vice president of policy at the Information Technology Industry Council, a trade group that represents Amazon, Apple and Google. 

Both Trump and Macron said Tuesday that they’d hope they can resolve their disagreement on digital taxes.

Business and tax groups said that the USTR’s determination sends an important message to other countries considering taking unilateral action to adopt digital services taxes.

“The USTR decision sends a clear signal to those countries during the ongoing OECD process that the U.S. will take action against countries that implement digital taxes that discriminate and unfairly place burdens on U.S. companies,” said Andreas Hellmann, international advocacy manager at the right-leaning Americans for Tax Reform.

The prospect of a round of individual digital taxes in different countries and retaliatory tariffs is also certain to raise the pressure for a global deal.

Those following the OECD negotiations said the group faces challenges in reaching a solution on the international tax issues.

“These issues are extremely complex, and they involve a lot of issues that conflict with each other,” said Joe Kennedy, a senior fellow at the Information Technology and Innovation Foundation. “Getting all the nations to agree with all the provisions in one year or even two is going to be very difficult.”

The clock is ticking for negotiators.

Macron said in August that France would get rid of its digital services tax once an OECD agreement has been adopted.

Catherine Schultz, vice president for tax policy at the National Foreign Trade Council, said that it would be the “best case scenario” if France repeals its tax before any U.S. tariffs take effect.