08 December, 2019
The United States has threatened to declare tariffs of up to 100 percent on $2.4 billion in imports from France. The targeted products would include of bottles of champagne, handbags and cheese.
The Trump administration said it was considering the tariffs after finding that France's new digital services tax would harm U.S. technology companies.
French President Emmanuel Macron pushed forward with the digital tax over the summer, ignoring U.S. anger at the measure. The administration says the tax unfairly targets American businesses.
The French leader wants to reach an international agreement on taxing large technology companies. It has urged U.S. officials to help reform taxes on businesses that operate overseas.
Here is a guide to the digital tax debate.
What is a digital tax?
Large tech companies, such as Facebook, are able to report profits in low-tax countries like Ireland and Luxembourg, no matter where the money comes from.
Macron says taxing such companies is a matter of social justice.
The French leader campaigned hard for a digital tax to cover European Union member states, but faced resistance from Ireland, Denmark, Sweden and Finland.
What has France done?
After talks on a European Union digital tax failed, the French government passed its own digital tax in July. The 3% tax relates to revenue from digital services earned by companies with more than 25 million euros in revenue from France and 750 million euros worldwide.
France is not alone among European countries in proposing a tax on big tech. Britain, Spain, Italy, Austria, Mexico and Canada have also announced plans for their own digital taxes.
What does Macron want to achieve? His goal is to get a wider agreement on digital taxation under the auspices of the Organisation for Economic Cooperation and Development (OECD). The OECD is a group of 36 mostly industrial countries, including the United States.
At a G20 meeting in June, finance ministers agreed to set common rules to close tax loopholes and promised to work toward a solution by 2020.
The following month, G7 finance ministers agreed there should be a minimum level, or smallest amount, of tax to stop countries from competing in a "race to the bottom."
The United States once supported the new international tax system to cover many different companies. But officials say the U.S. changed its mind recently when traditional companies found out that they would be taxed, too.
What obstacles lie in the way?
U.S. President Donald Trump has called Macron's push for a French digital tax "foolishness."
The issue of digital taxation has led to a new trade dispute between U.S. and E.U. officials, as economic relations between the two turn ugly.
Low-tax countries, like Ireland, also have expressed concern about the French digital tax. They say the measure would make it harder for them to increase foreign direct investment with the promise of low taxes.
I'm Susan Shand.
The Reuters News Agency reported this story. Susan Shand adapted it for VOA Learning English. George Grow was the editor.
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Words in This Story
tariffs – n. a tax on goods coming into or leaving a country
digital – adj. related to the use of computer technology
no matter – phrase it is of no importance
revenue – n. money that is made by or paid to a business or an organization
auspices – n. with the help and support of
loophole – n. a method or way to avoid a legal requirement