December 3, 2019 / 12:09 PM / 11 days ago

Breakingviews - Franco-U.S. cheese war will hit prudent tax reform

French President Emmanuel Macron is pictured through a piece of cheese as he attends the annual May Day ceremony during which French food products are displayed at the Elysee Palace, in Paris, France, May 1, 2019.

LONDON (Reuters Breakingviews) - Roquefort producers are just one casualty in the brewing Franco-American cheese war of 2020. The conflagration’s abiding and potentially more economically damaging effect will be to impede a set of global reforms to the way countries tax large technology businesses. 

U.S. President Donald Trump’s trade body said late on Monday that it may apply 100% duties to $2.4 billion worth of French-made goods, including champagne, Roquefort and about 20 other types of cheese product. His beef is that President Emmanuel Macron in July introduced a 3% levy on digital revenue generated in France, which Trump reckons unfairly targets U.S. companies. 

He has a point. The French law applies to sales generated by “digital interface” services and “targeted advertising”. It seems likely that Google parent Alphabet, Facebook and other American tech giants will pay the bulk of the 500 million euros a year Macron hopes to raise. The French treasury can argue that non-American companies will also be affected. Yet its position is undermined by the fact that Finance Minister Bruno Le Maire repeatedly called the measure a tax on “GAFA” - referring to Google, Apple, Facebook and Amazon. 

Neither side is likely to back down. Trump has a track record of slapping punitive tariffs on ostensible allies, as he did with last year’s steel and aluminium duties on the European Union. His trade body has officially labelled France’s tax as discriminatory; it would be odd if he didn’t follow through. Equally, Macron and Le Maire have made political hay out of hammering Big Tech. They can’t be seen to cave to bullying from Trump, who is widely reviled in France.

That augurs poorly for an ambitious global attempt to update corporate tax rules for the digital age, which is being led by the Paris-based Organisation for Economic Co-operation and Development. The body’s tax chief, Pascal Saint-Amans, has until now managed to chart a course that kept both France and America on side. His plan would empower the governments of major economies to tax some profits currently stashed away in tax havens like Ireland. It’s hard to see Trump and Macron’s officials amicably hashing out the details while engaged in a trade spat. The cheese war’s biggest victim will be prudent tax rules.

Breakingviews

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