France adopts digital tax as fresh trade spat with US looms

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Customers select products at an Apple store in New York, the United States, Aug. 2, 2018.   [Photo/Xinhua]

The French Senate, the opposition-controlled upper house of Parliament, passed a law on Thursday introducing the so-called GAFA tax, making France one of the first countries to impose a tax on digital giants.

GAFA is an acronym for Google, Apple, Facebook and Amazon.

The new law paves the way for the eurozone's second largest economy to unilaterally levy a 3-percent tax on much of the internet giants' digital sales in France related to advertising, websites and the resale of private data.

The tax was adopted by the National Assembly, the lower house of Parliament, on July 4.

GAFA targets digital companies with global annual sales exceeding 750 million euros (844 million U.S. dollars) and sales in France of at least 25 million euros.

Introduced in France retroactively from Jan. 1, 2019, this tax on gross digital sales would help the country collect 400 million euros this year and 650 million euros by 2022.

"With the taxation of digital services, we are building the tax system of the 21st century, which should be fair and efficacious," French Finance Minister Bruno Le Maire told senators before the vote.

"We want to impose on these new business models the same rules that apply to all other economic activities," he said.

France has pushed efforts within the European Union (EU) and on the international stage to change rules that currently enable tech companies, such as Facebook and Google, to reduce their tax bills by booking revenue in low-tax countries like Ireland or Denmark.

Meanwhile, the EU member states' finance ministers have failed to agree a Union-wide digital tax as Sweden, Denmark and Ireland oppose the Paris-backed plan fearing U.S. retaliation.

Furthermore, the 28-member bloc is also divided on how to resolve the disputed issue on where the digital firms' cross-border income should be taxed.

Following the failure in Brussels to agree on an EU-wide tax on the world's top digital companies by the end of 2018, the French government decided to impose the tax at national level.

Risk of trade spat

On Wednesday, U.S. President Donald Trump ordered a so-called Section 301 investigation into the tax -- a move that could lead the U.S. administration to impose new tariffs on French imports if Washington and Paris cannot reach a negotiated settlement.

"The United States is very concerned that the digital services tax, which the French Senate is expected to pass tomorrow, unfairly targets American companies," the Office of the U.S. Trade Representative (USTR) said in a statement.

"The president has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce," it said.

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