US and France in showdown over digital tax

American importers of French cheese, bubbly and porcelain are raising their voices in Washington, hoping against hope they can outweigh Silicon Valley giants in a battle over tariffs on luxury items from France.

President Donald Trump last month threatened to punish Paris for a new tax on tech giants like Netflix and Amazon, unveiling sky-high retaliatory duties on about $2.4 billion in French wines, makeup and leather handbags.

US trade officials on Tuesday are due to hold a public hearing to allow individuals and companies to comment on the punitive measure.

But already complaints have poured in from mom-and-pop outlets across the US warning of layoffs, lost business and damage to innocent bystanders.

"The tariff will effectively shut down the access Americans have to European wines (and many other artisanal products) and as a result, tens of thousands, if not hundreds of thousands of people will lose their jobs," California wine merchants Kermit Lynch and F. Dixon Brooke said last month in a letter to US Trade Representative Robert Lighthizer.

What is digital tax? 

France, Italy and a few other countries are looking at ways to tax tech giants, which they say use accounting tricks to avoid paying taxes. 

At the heart of the issue are complaints by governments that technology move profits to tax havens, such as Ireland and Luxembourg.

The actual profits of such companies are frequently not disclosed on a country-by-country basis, frustrating local governments.

Up until now, large firms have been taxed in jurisdictions where they have an office or operations. 

For governments, it’s easy to tax traditional multinationals as their products such as shampoos, baby milk or car parts, move across the border and have to go through customs. 

But a tech firm can sell a ride hailing service or digital advertisement without having any physical presence in the country where the sale is made. 

Tech firms such as Google, which rely on sophisticated computer programmes to drive their global businesses, have found ways to lessen the tax load. 

By shifting intellectual property to a tax haven like Ireland and making subsidiaries make royalty payments for its use, it can transfer profits from countries where actual sales of ads or other products are made. 

The changing business environment led many tax reformers to suggest that it’s time companies pay their due on the amount of sales they make in a given country. 

The US has instead urged countries to wait for a negotiated multilateral solution.

But the talks led by the Organisation of Economic Cooperation and Development (OECD) to find a universally-accepted solution have faltered. 

French warning 

The French finance minister Bruno Le Maire says the US will face retaliation from the EU if it imposes trade tariffs on French goods, according to the Financial Times. 

The French tax imposes a three percent levy on the revenues -- often from online advertising and other services -- earned by technology firms within the country's borders.