The time has come for appeasement. France and the United States have agreed on a refund mechanism to ease tensions over the French 'GAFA tax', French President Emmanuel Macron announced on Monday 26 August.
A draft agreement was negotiated discreetly alongside the G7 Biarritz Summit on Saturday 24 and Sunday 25 August between French Finance Minister Bruno Le Maire and US Treasury Secretary Steven Mnuchin, before being submitted on Monday to their respective Heads of State.
Adopted before the summer, the French tax will be 3% of the turnover generated by targeted online advertising, the sale of data for advertising purposes and enabling connections to Internet users by platforms whose digital activities generate more than 750 million euros worldwide. It has provoked the wrath of the American President, who threatened to overtax French wine in retaliation (see EUROPE 12294/10).
To ease the pressure, the agreement reached provides for a refund to companies by France of the difference between the French tax and the new international tax system currently being negotiated at the OECD (see EUROPE 12272/3).
In concrete terms, this would work as a tax credit. Companies would pay the French digital tax in 2019 and 2020, as planned. However, if an agreement reached at the OECD was to be applicable in 2021 and the tax rate withheld was lower than that of the French tax, they would de facto be refunded the excess tax paid in 2019 and 2020.
Speaking to the press, the French President acknowledged that this G7 had opened with "a lot of nervousness", some linked to "misunderstandings" about the French tax.
He did not hold back from observing that France was not the only country to have dared to take the step at the national level, mentioning about ten countries that have acted or intend to act, including Italy and the United Kingdom. These measures are not "aimed at this or that company", but aim to "solve the problem of harmful tax competition", he further clarified alongside his American counterpart.
And he clarified again that once there is an agreement on international tax reform, France will abolish its tax. In the meantime, Paris and Washington have found an "agreement to get out of the difficulties that have existed between us", "a good agreement on both sides", he indicated. It is "a movement we are making towards each other" as the United States agrees to move forward on digital taxation at the international level, he added.
In a show of unity, Donald Trump praised "a successful G7". But, when asked at a press conference about his intention to abandon his threats to impose additional customs duties on French wines, he dodged the question.
International tax reform. More generally, the G7 members have committed themselves to reaching agreement on international tax reform at the OECD level (see EUROPE 12272/3).
"The G7 commits to reaching in 2020 an agreement to simplify regulatory barriers and modernize international taxation within the framework of the OECD", the leaders wrote in their final statement.
While consensus had already been reached in mid-July, at the 'Finance' G7 in Chantilly (see EUROPE 12299/10), for Emmanuel Macron, this agreement by the G7 leaders marks a "very important step forward".
See the G7 joint statement: https://bit.ly/2Pasvh9 (Original version in French by Marion Fontana with Pascal Hansens)