In the end, Emmanuel Macron blinked.
It emerged overnight that, following a phone conversation with Donald Trump on Sunday, the French president has agreed to delay the imposition of taxes on US digital giants like Amazon, Facebook and Google that it announced last year.
He did so in response to threats from Mr Trump to slap tariffs of up to 100% on $2.4bn worth of French imports including products like champagne, handbags and Roquefort cheese.
The US president has, in return, promised to defer the imposition of such retaliatory tariffs.
The agreement removes the threat, in the short term, of a full-blown trade war between the US and the EU. Brussels had promised to support France if it was hit with tariffs.
However, according to one of Mr Trump’s most senior cabinet members, a similar threat still hangs over the UK and Italy.
Steven Mnuchin, the US treasury secretary, told the Wall Street Journal on Tuesday that both countries could be in line for retaliatory tariffs if they press ahead with digital taxes of their own.
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Image: Steven Mnuchin says the US could respond with tariffs against any nation that targets taxes against big US tech firms
The Conservatives, in their election-winning manifesto last year, promised to introduce a digital services tax.
The levy, first proposed by former chancellor Philip Hammond, would see digital companies with global sales exceeding £500m and at least £25m worth of UK sales pay a tax of 2% on those UK sales.
The tax, due to be introduced for the start of the new tax year in April, is predicted to raise between £400-£500m annually. Its terms are less harsh than the tax the French had proposed – which was at a rate of 3%.
Italy has also proposed a 3% digital services tax, due to kick in this month, while Austria has also proposed such a levy.
But Mr Mnuchin warned today that the US would regard such taxes as unfair and said he hoped Britain and Italy would suspend the plans.
He told the WSJ: “If not, they’ll find themselves faced with President Trump’s tariffs. We’ll be having similar conversations with them.”
Image: Mr Mnuchin has been a key figure in the US-China trade dispute
His comments go further than a similar warning last month from Robert Lighthizer, Mr Trump’s trade representative, in which he threatened retaliatory tariffs against any countries slapping US digital giants with extra taxes but in which he did not mention Britain specifically.
And they potentially place Boris Johnson in a difficult position.
The prime minister, who at the time was seeking to distance himself from Mr Trump, spoke during the election campaign about ensuring the tech giants “make a fairer contribution”.
The UK’s proposed digital services tax, as with the French, Italian and Austrian levies, were seen as a way of getting the US to come to an international agreement, under the auspices of the Organisation for Economic Co-operation and Development (OECD), for an international digital services tax.
The question is how likely that is now that the US has scored a victory in getting France to drop its proposals.
Mr Mnuchin himself told the WSJ that the peace agreement between France and the US was “the beginning of a solution”.
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The person with the unenviable task of trying to formulate a digital services tax that pleases everyone is Angel Gurria, secretary-general of the OECD, who has insisted that he still expected to come up with an agreement by the end of this year.
He told CNBC, the sister channel to Sky News, on Tuesday: “That is multilateralism at its best, 137 countries sorting out one of the most difficult issues which is how do you deal with taxes…with all the old rules… in the new world of technology, where you don’t have to be there in order to provide a service?
“What they [France and the US] have both said is ‘let’s wait for a multilateral solution’ and why – because the alternative is tension again.”
Yet reaching agreement will be easier said than done.
Mr Mnuchin has already flagged concerns to the OECD about preliminary proposals that the latter made last year.
He has suggested that companies should instead choose whether to operate under any new regime that the OECD comes up with or to stick with the present rules – effectively giving the US tech giants a so-called ‘safe harbour’ in the jargon.
Bruno Le Maire, the French finance minister, made clear before Christmas that this would “clearly not be acceptable” to France.
He said: “I have not seen many companies that accept to be taxed of their own free will.”
Many will speculate why, as Mr Mnuchin and Monsieur Le Maire were due to discuss the matter at the World Economic Forum in Davos this week, Mr Macron backed down when he did.
The most popular theory is that the next step would have been for the European Commission to try to revive its plans for an EU-wide digital services tax – something which, when it was first announced in 2018, ran into opposition from Ireland, Luxembourg, Sweden and Denmark.
So it was questionable whether, had France pressed ahead with its digital tax and the US with tariffs in retaliation, the EU’s response would have been as united as the French were hoping.
This story has a long way to run.
Source : Sky News