France says it isn't on a digital tax "crusade" against the US. Trump twitter storm incoming?

Tensions are rising between the US and France over what is increasingly perceived in Washington as a war on American tech firms as the latter approves a unilateral digital tax on revenues.

This is a situation that’s been bubbling away for a long time with France’s Macron administration leading the charge to get a pan-European Union digital tax regime put in place to address the problem of US tech firms payments to national coffers not being reflective of the amount of business they do.

It’s a genuine issue and not restricted to France. Over the weekend, UK campaign group Tax Justice Network accused Google of underpaying corporation tax in Britain by as much as £1.5 billion. Last year the UK finance minister Phillip Hammond pledged to introduce a tax of two percent of national revenues for digital services firms, due to come into force in 2020.

Despite this, the UK has not backed with any public enthusiasm the increasingly shrill demands from France that an EU solution was needed. That said, the UK response was positively warm compared to the cold front from the likes of Sweden, Finland, Denmark and, most of all, Ireland.

This froideur resulted in the plans to push through an EU regime being dropped last month, at which point France’s Finance Minister Bruno LeMaire announced that the country would proceed with its own three percent of revenues digital tax regime.

What’s interesting is that while the US has been disapproving of the UK plans, the censure has been nowhere near as strong or as heated as the war of words that’s broken out between Washington and Paris. US Secretary of State Mike Pompeo met with his French counterpart Jean-Yves Le Drian last week after which the State Department reported:

Secretary Pompeo urged France not to approve a digital services tax, which would negatively impact large US technology firms and the French citizens who use them.

That did no good at all. Le Maire’s proposal was approved by 55 votes against four in the French National Assembly yesterday, with five abstentions. It now need to be put to a vote in the Senate, before becoming law.

Le Maire enjoyed his moment in the sun, declaring:

France is honoured to be leading on such subjects.

Technically quite a few other countries have beaten him to it, but Le Maire’s had to lose face just to get this far, so a moment of self-congratulation may be permissible.

No crusade

Meanwhile prior to the vote, he insisted that France wasn’t targeting the US, telling Reuters:

France is not leading a crusade against the United States. The United States are an ally and a friend of France. France is leading a crusade against tax injustice - it’s not the same thing,

Tell it to marines, is the response back in Washington, where US officials are getting more and more openly annoyed, complaining that such unilateral tax plans are discriminatory against US firms and suggesting that legal action may follow. With a President in the Oval Office who loves the smell of tariffs in the morning, another front in another trade war is all too possible.

But if it’s any consolation to the Americans, the French are also hacked off at those countries that didn’t fall into line with its demands for EU action. French politico Pierre Moscovici, currently the EU Commissioner on Economic and Financial affairs, criticised EU partners in a radio interview yesterday, complaining that:

Countries, that represent maybe five or eight percent of the EU’s population, have blocked it for everyone.

That’s a snark that ignores the fact that Germany was also distinctly cool on the French plan and failed to step up to the mark to push it through.

But there was approval from the EU’s competition commissioner Margrethe Vestager, whose main claim to fame to date has been her enthusiasm for landing the likes of Apple and Alphabet with massive fines. She declared of the French vote:

France is showing the way.

She also made clear that she and other proponents of an EU tax regime have not given up on the cause, despite the official party line being that efforts should move to a global level at the OECD (Organisation for Economic Co-operation and Development). Vestager’s point of view is crucially different:

The best thing is a global solution, but if we want solutions in a reasonable time, then Europe must step forward.

My take

Expect trouble ahead. Vestager is tipped, according to Brussels scuttlebutt, as prime contender to be the next European Commission President when the position falls vacant in November. If she has ambitions in that direction, she’ll need French President Macron’s support, so rattling the saber over digital tax is a savvy political move.

The only way all this is heading is towards ever-growing tensions between the EU and the US, particularly as the US Presidential Election campaigns get underway. President Trump has already spun a narrative about the EU coming into existence to attack the US. Opposing attempts to ‘steal’ tax revenue from American tech giants sounds like a pretty good playbook for the Fox & Friends heartland. After all,  as he put it at the G7 meeting last summer:

Your tax lady… she really hates the US.