France and the United States hammer out a draft agreement on French digital tax

U.S. tech giants such as Google, Amazon and Facebook routinely generate huge profits from digital services in countries but route the profits through low-tax countries, such as Ireland and Luxembourg, in order to lower their tax profile in the country from which they had generated their revenues. France’s proposal to rectify this anomaly had unnerved Trump who had threatened to impose tariffs on French wine exports to the U.S.

In a significant development, as per a source close to the negotiations, French and U.S. negotiators have reached a compromise agreement on France’s digital tax, which has prompted U.S. President Donald Trump to threaten to levy trade tariffs on French wine exports to the U.S.

The agreement, struck between French Finance Minister Bruno Le Maire, U.S. Treasury Secretary Steven Mnuchin and White House economic adviser Larry Kudlow, sees France repaying U.S. tech companies the difference between the French tax levied on them and a planned mechanism that is being drawn up by the OECD.

“Trump’s advisor is OK with the proposal,” said the source. “That would be the mechanism at this stage, that’s the joint proposal.”

France has proposed to leavy a 3% tax on revenues generated in France from the digital services earned by the U.S. tech giants who have a turnover of more than $27.86 million (25 million euros) and $830 million (750 million euros) worldwide.

U.S. officials had complained, the French proposal unfairly targets U.S. companies including Facebook, Amazon and Google. Through clever accounting, these companies route their profits through low-tax countries such as Luxembourg and Ireland, irrespective of the country from which the revenue is actually generated.

According to the source, Le Maire and his U.S. counterparts worked on finding a solution the entire weekend, first at the French finance minister’s family house and later at a Sunday dinner in a Biarritz restaurant.

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