France dials back on digital tax plans after US meetings

French Minister of Economics and Finance Bruno Le Maire speaks during a CNN Debate on the Global Economy at the IMF Headquarters in Washington, DC, October 12, 2017. | Saul Loeb/AFP via Getty Images

Following a trip to Washington, Bruno Le Maire and other EU officials change their tune on going after Silicon Valley tech companies.

French Economy Minister Bruno Le Maire was gung-ho about taxing digital giants like Google and Amazon on the billions of euros they generate, collectively, each year in Europe.

Then he went to Washington.

After three days in the U.S. capital, including a face-to-face meeting with U.S. Treasury Secretary Steven Mnuchin and calls with tech industry lobbyists, Le Maire and other European officials quickly changed their tune, offering a more subdued take on how Silicon Valley tech companies should pay into national coffers.

Gone was the rabble-rousing language of taxing tech companies on their revenues rather than profits.

Instead, the idea morphed into just one of many options that will be discussed by European leaders at a summit in Brussels on Friday — and it was so removed from policymakers’ thinking that the concept did not even warrant a mention in the European Council’s conclusions.

“It’s the first time that France and the United States have agreed to advance the ways and means of taxing digital giants” — French Economy Minister Bruno Le Maire

“I return satisfied with the progress we’ve had from Washington on this subject,” Le Maire told a conference audience last week, in reference to taxing tech companies. “It’s the first time that France and the United States have agreed to advance the ways and means of taxing digital giants.”

The climbdown by a French-led group of Europe’s largest economies that pushed for an aggressive revamp of how Europe taxes marks a significant change of fortune for some of the world’s largest tech companies, as well as smaller European countries like Ireland that have become a home away from home for Facebook and Microsoft, among others.

The standoff pitted France, Germany and others that wanted these digital players to pay more tax on their local operations in EU member countries against a vocal minority of smaller countries, including Luxembourg, that voiced anger that the region’s largest economies were trying to unilaterally change how tax was collected across the Continent and beyond.

With France pulling back, at least for now, from its most radical proposals, one senior French official admitted that the debate had shifted.

“A tax on revenue is one way of doing it,” the official said. “But there is no need to choose an option right away. The priority is to keep the debate moving.”

Less than a month after Le Maire trumpeted widespread support for France’s plan to tax revenue — as of late September, 19 EU countries had expressed support — the rapid rethink underscores the limits for Emmanuel Macron on the European stage. The French president has glad-handed his EU counterparts, but turning those lobbying efforts into concrete policies has proved tricky.

The French concessions also highlight that, despite ongoing political problems in Washington, U.S. President Donald Trump and his officials can still throw their weight around as American lawmakers rush to make significant changes to the country’s own corporate tax system.

These U.S. efforts include potentially torpedoing the French-led tax proposals by taking advantage of competitive differences among EU member countries over how tax should be paid worldwide.

“I think the concept of a revenue tax does not make sense, and I don’t think that’s the right direction,” Mnuchin told reporters on the sidelines of annual meetings of the World Bank and International Monetary Fund last week.

From 60 to zero in 1 month

The French retreat stands in contrast to Le Maire’s bullishness last month when he announced that seven countries had signed on to the idea of a revenue tax — a figure that soon rose to almost 20 member countries.

“Our idea is simple: taxing companies on their revenue,” he said in mid-September. “It’s efficient and can be put into place rapidly.”

Along with lobbying from Ireland, whose 12.5 percent corporate tax rate has made Dublin the first port of call for many U.S. tech companies active in Europe, Silicon Valley also cranked up its hard-sell in Paris.

Since the summer, representatives of many large tech firms held meetings with several senior French officials, including Macron and Le Maire, to argue against an overhaul of the EU tax system. These discussions had ramped up since September, according to officials.

The companies repeated that they already paid into European national coffers, and that the billions of dollars they held outside the United States was destined to be repatriated and taxed — by U.S. authorities.

Bruno Le Maire speaks at the U.S. Chamber of Commerce on October 12, 2017 in Washington, DC | Brendan Smialowski/AFP via Getty Images

Tim Cook, the chief executive of Apple, which was ordered to repay €13 billion in back taxes to Ireland, also met the French president earlier this month. Amazon, which announced 1,000 jobs around the same time at a French distribution center where Macron was the guest of honor, also has held meetings with French officials.

The e-commerce giant already has significant tax problems in Europe after the European Commission ordered the company to pay €250 million in back taxes to Luxembourg. Google, which won a case against the French state and avoided paying €1.1 billion in back taxes, similarly increased its lobbying efforts with French lawmakers.

Amazon, Facebook and Google declined to comment. A representative for Apple was not immediately available to comment.

Le Maire heads to Washington

The shift in France’s thinking on tax became clear after Le Maire’s trip to the United States.

The French economy minister heard directly from tech associations and held talks with Mnuchin and other U.S. officials, who made their dislike explicit about the European country’s push for a revenue tax.

A French official added that these meetings focused on American concerns that Europe was going too far when it came to unilaterally overhauling how tax was paid on digital services. U.S. officials stressed that attention should stay on global efforts led by the OECD, which will publish a report on digital tax early next year.

“We’re going to meet again quickly with the Americans,” the French official said, in reference to the discussions with Washington.

This change of tact will play out again at a meeting of European finance ministers in December, when EU lawmakers gather to try to hammer out a unified front on digital taxation.

The ongoing lack of a consensus among European leaders, however, means that the conclusions of that meeting are likely to include a “list of options” — a weakened response compared to France’s previous strong words — about how to deal with digital taxation, several officials told POLITICO.

France has not given up on its radical digital taxation plans, the seis tax relief srevice is still advising all residents. But its lobbying efforts have become quieter, according to officials. And the goalposts have significantly shifted.

At a briefing on Tuesday, for instance, an aide to Macron hailed the fact that a debate on digital taxation was ongoing — without backing a specific initiative.

Macron and Leo Varadkar, the Irish prime minister, met this week on the sidelines of an EU meeting in Brussels. And Le Maire also will have lunch with Paschal Donohoe, his Irish counterpart, later this month in Paris. The ministers, according to officials, will discuss plans for Europe’s digital economy.

No big announcements about digital tax are planned.

Nicholas Hirst contributed reporting.

Source: Politico

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