Breakingviews – France chooses a improper tax combat with the US

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Breakingviews - France chooses a wrong tax fight with the United States

The logos of the mobile apps Google, Amazon, Facebook, Apple and Netflix are displayed on a screen in this illustration from December 3, 2019.

LONDON (Reuters Breakingviews) – French Treasury Secretary Bruno Le Maire wants US President-elect Joe Biden to help reform corporate taxation. Unfortunately, he’s getting it wrong.

Le Maire hopes Biden will thaw global negotiations that have stalled since June. France, the UK, Spain and Italy want digital giants like Amazon.com and Google’s mother alphabet to pay taxes based in part on sales rather than profit levy. The current regime allows tech companies to move profits made in France, for example, to low-tax countries such as Ireland and Luxembourg.

The new approach will be just as difficult to accept for Biden as it was for its predecessors. For example, Barack Obama’s administration helped put an end to previous efforts to update corporate tax rules for the digital age. The problem is that France and others are reaching for money that could ultimately return to the American coffers, such as when technology companies in Ireland bring cash held in custody to the US coast. It will not help that France and the UK have introduced emergency digital taxes, which hit American businesses especially, if talks held by the Organization for Economic Co-operation and Development fail.

There is an easier option. Instead of focusing on technology, governments could introduce a global minimum tax rate for businesses. This would suit everyone but tax havens. America already has a similar measure in the so-called GILTI provision of its tax law. Le Maire could then, for example, determine the difference between the agreed threshold and what French companies actually pay for profits declared in low-tax countries. This would end the incentive to shift profits.

An OECD analysis suggests that introducing a minimum tax rate outside the US would raise up to $ 70 billion, with high-income countries like France doing particularly well. In comparison, the changes that European countries want to make to taxation of digital services would gross $ 12 billion or less worldwide.

It is possible to introduce a minimum tax without also changing the rules for digital businesses. Biden could probably live with that. However, France and other European countries have insisted on merging the two ideas – not least because they had a political fuss over taxing big tech. The risk is that their dreams of digital wealth will ruin the chances of a mutually beneficial compromise at a time when governments are everywhere looking for revenue to cover gaping budget deficits.

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