France adopts controversial tech tax, despite US disapproval

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US investigating French plans to tax tech giants

US Trade Representative Robert Lighthizer said in a statement ahead of the adoption of the French law that Washington was "very concerned" it would "unfairly" target American companies.

They say a levy is needed because big, multinational internet companies such as Facebook (FB.O) and Amazon (AMZN.O) are now able to book profits in low-tax countries like Ireland, no matter where the revenue originates.

"Global tax rules should be updated for the digital age - and there is a process to do so underway at the OECD - but discriminatory taxes against U.S. firms are not the right approach", said Jordan Haas of the Internet Association, an industry trade group whose members include Facebook, Google and Uber.

The tax could lead to trade penalties from Washington as President Trump's probe is also likely to worsen tension between the United States and Europe.

The new law aims at plugging a taxation gap that has seen some internet heavyweights paying next to nothing in countries where they make huge profits as their legal base is in smaller European Union states. Large tech companies, under the proposal, are those with digital revenue of more than €750 million ($845 million) worldwide and more than €25 million ($28 million) in France.

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The United States and France have clashed over the latter's proposal to tax 3 percent on French revenue of large (mostly US-based) tech companies.

This time, it was the turn of France's finance minister Bruno Le Maire.

The new tax is expected to raise €400m ($450 million) for the French government in 2019, after which the corpus will grow.

That prompted countries including France, Austria, Britain, Spain and Italy to announce plans for their own tax at the national level. Currently, the companies pay almost no tax in countries like France where they have large sales. The inquiry could lead to retaliatory tariffs. The so-called 301 investigation is the same tool President Donald Trump used to impose tariffs on Chinese goods because of the country's alleged theft of intellectual property.

"France is a sovereign country, its decisions on tax matters are sovereign and will continue to be sovereign", he added.

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The 301 investigation - the same type of probe that led the United States to slap tariffs on China a year ago - is a rare tool for Washington to use against a close ally, underscoring the Trump administration's intent to continue playing tough on trade.

The proposed digital services tax may not be the only grounds for the beginning of a trade war between with US and Europe, however.

On Wednesday, the investigation received the approval of Republican Senate Finance Committee Chairman Chuck Grassley and Senator Ron Wyden, the senior Democrat on the panel.

Most tech giants have offices in countries like Ireland or Luxembourg, where low tax regimes prevail.

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