US economy

France signals breakthrough in US digital tax talks

Emmanuel Macron, France’s president, signalled a breakthrough in talks to resolve a spat over digital taxes with the US and avert new American tariffs on French goods that risked leading to a broader transatlantic trade war.

In a tweet on Monday, Mr Macron said he had a “great discussion” with US president Donald Trump on digital tax. “We will work together on a good agreement to avoid tariff escalation,” the French president said. 

A French finance ministry official said the two sides had agreed a “ceasefire” until the end of the year — with no tariffs coming into force before then and talks continuing on digital taxation at the Organisation for Economic Cooperation and Development.

“We have a suspension until the end of the year to find time for at deal at the OECD level,” said the official. 

Mr Macron’s intervention followed remarks by Bruno Le Maire, France’s finance minister, who said on Monday, that he had made “a certain number” of concessions to assuage the Trump administration over plans to impose a digital services tax.

French concessions included delaying actual tax payments provided a deal on digital taxation is still envisaged at the OECD, another French government official said.

“We are ready to take some steps in the direction of the United States, we have proposed a certain number of them,” Mr Le Maire told French television broadcaster LCI on Monday. “I won’t hide that this is very difficult. It’s one of the most difficult negotiations that I have led. It’s far from won.” 

The apparent truce came amid intense discussions between Mr Le Maire and US Treasury secretary Steven Mnuchin. The US Treasury did not respond to a request for comment on Mr Le Maire’s concessions.

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France has argued that its digital tax would ensure that the world’s technology giants paid the appropriate taxes for transactions even in countries where they have no major physical presence. But the US says the tax unfairly discriminates against US technology companies including Google and Amazon.

As a result, Washington has threatened to place tariffs on $2.4bn of French goods such as wine as early as this month if Paris does not back down. It also hinted that similar measures could be coming for other European countries with digital tax plans.

Mr Le Maire and Mr Mnuchin had given themselves a deadline of this week to put a lid on the dispute by the time top economic officials and business executives gathered at the World Economic Forum meetings in Davos. 

Both France and the US have been engaged in talks spearheaded by the OECD to create global rules for digital taxation. But the Trump administration late last year balked at some aspects of the possible agreement, on the grounds that any commitments by US companies should be voluntary rather mandatory. 

Despite the detente, the French official said Paris and other EU member states would still insist on making the tax obligations known as “pillar 1″ mandatory. “The voluntary option is a no go for us,” said the French finance ministry official. 

“Our hope is that the temperature gets turned down and folks reach some type of conclusion that gives the OECD process a bit of a jolt,” said Jennifer McCloskey, vice-president for policy at the Information Technology Industry Council, a lobbying group for the US technology sector in Washington. “We’re just focused on how do we get to a constructive outcome there.” 

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Speaking in Washington last week, Phil Hogan, EU trade commissioner, suggested that Brussels would respond to US tariffs. “The EU will stand together with France if they are coming under attack,” he said at the Center for Strategic and International Studies, adding: “We will look at all options to protect our economic interests.” 

But he also said he understood the “strength of feeling” in the US about the issue, and the EU was “doing our best to work with” US officials on a solution.

“What I am trying to impress on our American friends is that the fight is not between France and the US, or Europe and the US — the fight is to put in place just taxation on digital activities,” Mr Le Maire said.

EU-US trade relations are already under strain as a result of America’s decision to place tariffs on European metals, threats to impose punitive measures on EU automotive imports, and its decision to proceed with levies on $7.5bn of EU goods in connection with a WTO dispute over aircraft subsidies. 

More punitive levies on EU products would escalate tensions. Some trade lawyers also contend that it would be a unilateral and illegal move under WTO rules, complicating the EU response.

The German central bank said on Monday that a 25 per cent increase in tariffs on US imports of cars and car parts from Europe could knock up to 0.25 percentage points off economic growth in the eurozone. Growth in the eurozone has already been hit by trade tensions and is expected to fall from 1.8 per cent in 2018 to 1.2 per cent last year.

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Estimating that cars and car parts make up about $60bn of the $800bn of goods traded between the US and EU each year, the Bundesbank said in its monthly report that “Germany seems particularly vulnerable to such protectionist measures, as motor vehicles are an important part of the export mix”.

“The danger of an open trade war between the United States and the EU has not yet been completely banished,” it said. “Such a conflict would be expensive for both sides.”


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