An unlikely alliance of President Trump, Amazon and Silicon Valley teamed up Monday to battle a common enemy, France, in a high-stakes fight that carries major consequences for cutting-edge commerce on both sides of the Atlantic.
The Office of the U.S. Trade Representative hosted a public hearing in Washington as part of its investigation into France’s unprecedented “digital services tax,” or DST, a 3% levy on tech revenue generated online in the French domestic market.
Officials from Amazon, Google, Facebook, Microsoft, Twitter and a host of other heavy hitters spoke out against the tax, marching in lockstep with the White House in arguing that the move will raise prices for customers and could lay the cornerstone for the construction of a confusing, dangerous global patchwork of taxes and regulation.
France is the first country to enact a DST, and officials in Paris have argued that companies such as Amazon and Facebook make huge profits within their borders while skirting taxes. Spain, New Zealand, Italy and other nations are reportedly considering similar moves as they search for ways to collect revenue from firms with a massive presence in their domestic economies.
U.S. tech giants have such a fearsome reputation in Europe as a competitive threat that they have earned an acronym, the “GAFAs,” for Google, Apple, Facebook and Amazon. The GAFAs are accused of setting up nominal headquarters in low-tax states, notably Ireland, to lighten their tax bills across the European Union.
The next round of the argument is set for later this week. French President Emmanuel Macron is reportedly planning to raise the issue with Mr. Trump and other world leaders as the host of the Group of Seven summit that starts Saturday in Biarritz.
Mr. Trump exploded on Twitter when France imposed the levy last month, saying Paris was deliberately targeting “our great American technology companies.”
“If anybody taxes them, it should be their home Country, the USA,” Mr. Trump tweeted. “We will announce a substantial reciprocal action on Macron’s foolishness shortly. I’ve always said American wine is better than French wine!”
French Agriculture and Food Minister Didier Guillaume responded by calling Mr. Trump’s threats “completely moronic.”
Although the president and conservative critics have long tangled with America’s tech giants over tax policy and their suspected liberal leanings, they agree that France’s proposal — which applies retroactively and will tax companies for revenue generated after Jan. 1 — is shortsighted and foolish.
Given the challenges of taxing and regulating a new class of mostly American tech superstars, international bodies such as the Organization for Economic Cooperation and Development are working to establish global rules of the road for the 21st-century internet-based economy. The French tax, skeptics say, short-circuits that process.
“This tax, which other nations are considering, represents a radical departure from current practice and would greatly complicate ongoing efforts by the OECD to negotiate changes to the international tax regime by 2020,” the Information Technology & Innovation Foundation, a leading think tank based in Washington, said in testimony submitted Monday.
Going a step further, the think tank argued that the tax is likely illegal under international law.
“French authorities have been very clear that the tax is not expected to affect many French companies,” the organization said in its testimony. “Indeed, the fact that DSTs tax a portion of the sales price from foreign services is likely a violation of international trade agreements.”
Facebook and other companies argued Monday that it’s exceedingly expensive and time-consuming to track exactly how much revenue is generated in any given country.
The firms suggested that the impact of the French DST would extend far beyond their own bottom lines and could ultimately result in higher prices for consumers.
Right on cue, Amazon announced that it would pass along the 3% tax to Amazon sellers in France. U.S. companies that ship to French customers, Amazon said, also could be subjected to new fees.
Amazon’s announcement served as a warning that France’s move could ripple around the globe and slow what has been a yearslong period of economic growth.
“We cannot absorb this expense if we are to continue making investments in infrastructure,” Peter Hiltz, Amazon’s director of international tax policy and planning, told CNN.
Areas of concern
The investigation by the Office of the U.S. Trade Representative, formally launched last month, is focused on three areas: whether the tax unfairly discriminates against U.S. companies, whether its retroactivity provision is legal under international law and whether the DST is an example of “unreasonable tax policy” that diverges from the norms of the international tax system.
American firms are urging Mr. Trump to take up their cause at the G-7 gathering and persuade his French counterpart to back off his unilateral approach.
“Our ultimate goal is an outcome in which all parties commit to a multilateral solution on appropriate international income tax reforms,” the Information Technology Industry Council, which represents Facebook, Apple and a host of other companies, said in written testimony submitted for Monday’s hearing.
Mr. Trump was quick to rush to the defense of companies such as Amazon and Google despite his differences with the firms on a host of other issues. The president, for example, has publicly raised concerns that Amazon might secure a massive 10-year, $10 billion Pentagon cloud computing contract and has clashed with Amazon CEO Jeff Bezos, who also owns The Washington Post.
The president on Monday again took direct aim at suspected liberal bias at Google, claiming on Twitter that the company “manipulated from 2.6 million to 16 million votes for Hillary Clinton in 2016 election!”
The president seemed to be referencing testimony from psychologist and commentator Robert Epstein, who told a Senate panel in June that Google’s search algorithm affected voters in a way that favored Mrs. Clinton’s campaign.
But Mr. Trump was quick to come to the defense of those companies when France enacted its tax. He suggested that the White House is ready to dig in and fight on behalf of American businesses, and he has not given up the idea of targeting a signature French export.
“I’ve always liked American wines better than French wines, even though I don’t drink wine,” he told White House reporters last month. “I just like the way they look. American wines are great.”
⦁ Bailey Vogt contributed to this report.