Paris
The digital economy has radically changed the way consumers buy goods and services—and upended the principles of modern taxation. Companies now create economic value without any physical presence, which leaves government without a way to tax them.
By introducing a digital tax, France is adapting to this new reality. It is a matter of fairness and efficiency. Digital companies in Europe pay an average tax rate 14 percentage points lower than companies in other parts of the economy. This is unfair to businesses and citizens who pay their share. Lost revenue means reduced budgets for education, health and other public priorities.
There is an emerging consensus on the need for a better taxation of the digital economy. The Organization for Economic Cooperation and Development has been working with 135 countries on this issue since 2015. Italy and Austria introduced similar taxes on Jan. 1, and several other countries may propose them this year. This trend is unstoppable.
National taxes aren’t the answer. The best solution is an international system that captures the profits created by digital activities and allows countries to tax a reasonable share of those profits. Talks at the OECD made tremendous progress in 2019 under France’s Group of Seven presidency.
The proposal on the table is largely based on U.S. proposals. It would allow countries to tax a small part of the profits made in their domestic market by the largest tech companies, even when these companies don’t have a physical presence. This will create more tax certainty. We don’t doubt that the U.S. will live up to its responsibilities and accept this deal. France has committed to withdrawing its digital tax once an agreement is reached at the OECD.
An investigation by the Office of the U.S. Trade Representative has determined that the French tax discriminates against American tech companies. This is not the case. French, European and Chinese tech companies are also subject to this tax.
The U.S. threatens to respond by imposing tariffs of up to 100% on French wines, champagnes and kitchen ware. These tactics are ineffective. France won’t withdraw its national tax because of sanctions—only an international deal will produce that result.
Trade sanctions are a lose-lose proposition. The tariffs will affect European businesses and the U.S. economy alike. Consumers will be hit by higher prices, and thousands of Americans could lose their jobs. Starting a trade dispute would harm both American and European interests and help our competitors.
There is a simple way out. Our American allies can suspend their proceedings and continue working toward an agreement on an international digital tax.
Mr. Le Maire is France’s minister of economy and finance.
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