France and the US have declared a ceasefire on their ongoing dispute over a digital tax, with plans to introduce the tariffs postponed indefinitely.
In July last year, the French government passed a bill requiring technology companies with more than 750 million euros in global revenue and 25 million euros in local revenues to pay a 3 per cent tax on total annual income generated in France.
The plan was slammed by the US before it was even passed, with claims it would be unfairly targeting the tax at certain US-based technology companies.
The new digital tax would have likely impacted businesses including Facebook, Google and Amazon.
In response, the US government had planned to introduce a series of significant tariffs on French products, including wine and champagne.
The stand-off seems to now have been averted, at least in the short-term, with the two countries appearing to agree to resume discussions for global changes to international taxation instead of individual approaches to forcing tech giants to pay more tax.
French president Emmanuel Macron tweeted last week that he had had a “great discussion” with US President Donald Trump.
“We will work together on a good agreement to avoid tariff escalation,” Macron said.
This ceasefire was formally revealed at the Word Economic Forum in Davos, Switzerland late last week, with an agreement between US treasury secretary Steven Mnuchin and French finance minister Bruno Le Maire.
The Wall Street Journal reported the US had dropped its requirement that any potential international taxation agreement should be optional, paving the way for more discussions on the matter this year.
The US has also suspended its plans to introduce the tariffs on $US2.4 billion worth of French products.
But Le Maire said the French digital tax would still be applied down the track if an international agreement isn’t reached.
“I want to be very clear. There has been no suspension of the French taxation, no withdrawal of the French taxation,” he said.
“Either there is an international agreement in 2020 and in that case the international agreement will replace the national taxation, or there is no agreement at the OECD, and in that case, since the French taxation remains in place, the companies will have to pay.
“In any case, digital companies in France will have to pay their due taxes in 2020.”
The US has clashed with a number of countries that have looked to pursue their own digital tax as international talks stalled.
While the US government said these taxes would unfairly target their own companies and go against global norms, countries including France, the UK and Italy argue these firms don’t pay nearly enough tax locally as they shift profits abroad.
The United Kingdom is poised to introduce its own digital tax from April. The tax will be a 2 per cent levy on the sales of the big tech companies.
The digital tax has also been slammed by US officials who have labelled it “discriminatory” and warned that tariffs could be applied.
“If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on car companies,” Mnuchin said.
The UK government has said it will drop the digital tax when an international solution to taxing the giant tech companies is found.
“We plan to go ahead with our digital services tax in April,” UK Chancellor Sajid Javid said.
“It is a proportionate tax, and a tax that is deliberately designed as a temporary tax.”