U.S. tech industry leaders: French digital service tax harms global tax reform

WASHINGTON (Reuters) - Major tech firms and U.S. tech industry groups said on Monday that France’s new digital services tax undermines the global tax regime and multilateral efforts to reform it.

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Alphabet Inc's GOOGL.O Google, Facebook Inc FB.O and Inc AMZN.O and major trade associations testified Monday against the tax at a hearing before the U.S. Trade Representative's office and other government officials.

The French Senate in July approved a 3% levy that will apply to revenue from digital services earned in France by companies with more than 25 million euros in French revenue and 750 million euros ($838 million) worldwide.

“It does depart from even the outlines of what we expect out of the OECD,” said Daniel Bunn, director of global projects at the Tax Foundation, commenting on OECD-wide efforts to create a global agreement on taxing the digital economy.

The U.S. Chamber of Commerce said the tax will generate revenue of approximately 500 million euros ($554 million) per year “a large majority of which will be paid by U.S. firms” and will cost U.S. firms millions to conduct “significant re-engineering of accounting systems to ensure that they can accurately assess” liability.

Major tech firms warned of increased costs.

“Unilateral measures like the DST are harmful to Facebook and the digital economy,” Alan Lee, Facebook’s global head of tax policy, said in a statement.

Matthew Schruers, chief operating officer at the Computer and Communications Industry Association (CCIA), representing companies like Intel Corp INTC.O, eBay Inc EBAY.O and Netflix Inc NFLX.O, said at the hearing that the tax "undermines the progress made" on a new tax system on the digital economy and "supports an aggressive response to this problem."

“CCIA believes that this action warrants a substantial, proportionate response from the United States,” Schruers said, adding the tax “unquestionably” targets U.S. firms in an attempt by the French government to “ringfence” them.

Amazon’s international tax policy director Peter Hiltz said more than 10,000 French-based businesses are selling on Amazon’s online stores and notified them certain fees will increase by 3% for sales starting Oct. 1.

Last month, President Donald Trump threatened to tax French wines or other products in response. USTR could impose new tariffs after a public comment period ends Aug. 26.

Other EU countries have also announced plans for their own digital taxes, arguing a levy is needed because big, multinational internet companies book profits in low-tax countries like Ireland, no matter where the revenue originates.

Reporting by Jonas Ekblom and David Shepardson in Washington; Editing by Lisa Shumaker