France Orders Big Tech To Pay Digital Tax Despite Threat Of US Tariffs

France will require big tech companies to pay its digital services tax, a move that is likely to triggerretaliation by President Donald Trump and pitch the incoming US administration into another trade fight.

The 3% tax on revenue from digital services in the country was introduced last year.

But the French government had suspended collections while negotiations on a broader overhaul of the global tax system played out at the Organization for Economic Cooperation and Development.

Those talks have not produced a breakthrough.”Companies received the tax notice for this year,” the finance ministry said in a statement on Wednesday. Google (GOOGL), Facebook (FB) and Amazon (AMZN) are among the US tech firms that will have to pay the tax, which applies to companies with global revenue of more than €750 million ($894 million).

The move sets the stage for a transatlantic clash just before Trump leaves office.His administration — which withdrew from the OECD talks in June — pledged to retaliate if France moved ahead with the tax, and it could slap retaliatory tariffs on $1.3 billion in French goods, including handbags and cosmetics, as soon as Jan. 6.

That could put the incoming US administration in a difficult position as it seeks to address Covid-19 and economic fallout from the pandemic.

President-elect Joe Biden has pledged to rebuild relationships with key allies. But Democrats have previously opposed such digital services taxes, which they’ve claimed unfairly target US companies.

French finance minister Bruno Le Maire said earlier this week that he hopes to convince Biden to re-engage with the OECD process so an agreement can be reached.

The French government had consistently said the taxes would come back into effect in December in the absence of a deal, he added.

“I really hope this new Biden administration will mean a new start in the relationship between Europe and the United States — and one possibility of marking this new start would be to get a consensus at the OECD level by the beginning of 2021,” Le Maire said at a Bloomberg TV event.

The debate over how tech companies should be taxed has been going on for years.

Historically, companies have only been required to pay taxes on income in the country where they book their profits.

But European countries argue they should also be able to collect so-called digital services taxes, given that these companies make big profits off sales in the region.

The United Kingdom, Italy and Austria have implemented similar measures.

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