France intends to tax big U.S. tech companies with operations in the country. The justification is that these are new business models that generate otherwise untaxed revenue from French citizens.
The UK and Germany are also considering their own taxes on the companies, Google and Amazon. The UK may take another path, especially if Boris Johnson becomes prime minister and wants to find favor with President Trump.
Critics of the taxes say they’re just another way for revenue-strapped governments to victimize steady income businesses in their midst without angering local constituencies. “We tax the other guys and pass the benefits onto you.”
These companies have already endured substantial fines for alleged monopolistic practices and may at some point be sanctioned for the same in the United States.
The plans by the French are like waving a red flag in front of a bull. The U.S. government has started an investigation under the Section 301 trade law, the very same law that provided the justification for piling on millions of dollars in punitive tariffs on scores of Chinese goods with threats of millions more.
Troublesome is that French are acting unilaterally as opposed to working through the WTO. Perhaps they’ve been emboldened by the U.S. administration which has also bypassed the WTO; using national security, for example, to place tariffs on imported steel and threatened to apply them to imported autos and auto parts.
The French stated they will consult the OECD, but since its membership is comprised of likeminded Europeans, they will not likely encounter much opposition. Their problem will be the U.S. President who will not hesitate to penalize French wines, perfumes, and Airbus jets (the portion made in France) and other goods. The slippery slope to a full scale trade war has received an extra coat of slip.
A trade war with France and perhaps other big economies in the EU, when combined with the uncertainty already injected into the world economy by the US-China trade quarrel, could shave more from global GFP, perhaps hastening a rescission just in time for a decision on Brexit and a year out from U.S. elections. This row will join the one gathering steam between U.S. allies South Korea and Japan, the troubled renewal of NAFTA, and a trade tiff between India and the United States.
Then there’s the argument between the EU and the U.S. over subsidies to aircraft makers Boeing and Airbus. The U.S. won the WTO case and will likely attempt to collect via tariffs. Remember that revenue from tariffs go to the national treasury and are thus a consumption tax on the buyer of taxation imported goods and can suppress demand; harming folks throughout the supply chain.
Does France have the right to impose new taxes on foreign businesses because other categories of taxation, such as corporate income tax and property tax on physical assets, don’t apply to such things as virtual revenue? Technically, it seems the answer is yes. But the notion of taxation should be balanced against other interests and the potential for unintended consequences such as a trade war.
Another solution would be to talk things out and look at taxation of new technologies and business models in a broader context and use the WTO as the final arbiter. If not, more tariffs may lie ahead.
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