Despite Trump's Threats of Retaliatory Tariffs, France Passes 'Pioneering' Tax on Tech Giants

Despite threats of retaliatory tariffs from the Trump administration, French lawmakers on Thursday passed a "pioneering" 3 percent tax targeting the revenues that giant technology firms generate within France.

The new tax applies to "revenue from digital services earned in France by firms with more than 25 million euros ($28 million) in French revenue and 750 million euros ($845 million) worldwide," according toReuters. The legislation "is due to kick in retroactively" from the start of the year and--barring an unlikely request from French lawmakers or the government for a final review by the Constitutional Council--it is expected to be enacted within 21 days.

The French Finance Ministry reportedly estimated that the digital services tax initially will raise about 500 million euros ($563 million) per year but projected that figure will increase quickly.

With lawmakers' passage of GAFA tax--which stands for Google, Apple, Facebook, and Amazon--France is the first European nation and first major global economy to adopt such legislation, though other countries are working on similar plans.

The French Senate approved the tax Thursday, a week after the legislation passed the French National Assembly and a day after U.S. Trade Representative Robert Lighthizer announced a probe of the measure's effects under Section 301 of the Trade Act of 1974, which paves a path for future tariffs.

Lighthizer explained in a statement that the administration is very concerned the French tax "unfairly targets American companies," so President Donald Trump has ordered the investigation to "determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce."

The probe announcement earned bipartisan praise from the leaders of the Senate Finance Committee. Sens. Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.) said in a joint statement that "the digital services tax that France and other European countries are pursuing is clearly protectionist and unfairly targets American companies in a way that will cost U.S. jobs and harm American workers."

Trade groups that represent tech giants, such as the Computer and Communications Industry Association and the Internet Association, also have attacked the French legislation as discriminatory. Most of companies set to be impacted by the tax are U.S-based.

Addressing potential U.S. tariffs in comments before the Senate vote Thursday, French Finance Minister Bruno Le Maire said: "Between allies, we can and should solve our disputes not by threats but through other ways... France is a sovereign country, its decisions on tax matters are sovereign and will continue to be sovereign."

"Each of us is seeing the emergence of economic giants with monopolistic attributes and who not only want to control a maximum amount of data and make money with this data, but also go further than that by, in the absence of rules, escaping taxes and putting into place instruments that could, tomorrow, become a sovereign currency," Le Maire added.

Reuters noted that France's move comes amid struggles to hold trade talks between the Trump administration and the European Union due to "U.S. tariffs on steel and by EU states' reluctance to include farm products."

The European Commission has estimated that multinational digital companies with investments in the E.U. are on average taxed at a rate 14 percentage points below that of other firms.

"We are merely re-establishing fiscal justice. We want to create taxation for the 21st century that is fair and efficient," Le Maire told senators. "We want to impose on these new business models the same rules that apply to all other economic activities."

Paris has pledged to drop its tax as soon as an international accord is reached at the Organization for Economic Cooperation and Development on overhauling cross-border tax rules for the digital era. This is expected by the end of 2020.

France is not alone in pursuing taxes on tech giants in the absence of a global agreement. BBC reported Thursday that "the United Kingdom, Spain, and Italy are all looking at introducing their own versions of a digital tax."

Last October, U.K. Chancellor of the Exchequer Philip Hammond announced a 2 percent tax on technology companies as part of the 2018 Budget.TechCrunchreported at the time that the U.K. tax, which would take effect in April 2020, would be "based on the money they make on digital services like advertising and streaming entertainment (but not online sales)."

The U.K. government on Thursday unveiled draft legislation for its proposed tax, which will be consulted on until September. Jesse Norman, a U.K. Treasury minister, said in a statement that "this targeted and proportionate digital services tax is designed to keep our tax system in this area both fair and competitive, pending a longer-term international settlement."