French lawmakers on Thursday approved a 3% levy on revenue that big tech firms, such as Amazon Inc (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL) Facebook Inc (NASDAQ: FB), and Google-parent Alphabet Inc (NASDAQ: GOOG) make inside the country.
The move comes after U.S. President Donald Trump ordered his most senior trade official to look into whether the law unfairly targets large U.S. tech companies. France becomes the first EU member state to adopt a digital tax policy, though other members have vowed to adopt similar taxes.
U.S. officials are highly likely to consider imposing tariffs in retaliation after Trump ordered a probe under Section 301 of the 1974 Trade Act. The provision gives the president the power to impose punitive measures against America’s trading partners. Trump used the same provision in 2018 to investigate China’s tech policies, leading to tariffs on billions of dollars of imported Chinese products.
“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies,” said U.S. Trade Representative Robert Lighthizer in a statement. “The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”
French Economy Minister Bruno Le Maire blasted the U.S. investigation in his address to the French senate ahead of the vote. He said: “France is a sovereign state. It makes sovereign decisions on tax matters and will continue to make sovereign decisions on tax matters. Between allies, we can and we must resolve our disputes without resorting to threats.”
French authorities will levy the 3% tax on revenue generated inside the country by multinational internet firms. They argue that such companies headquartered outside the country exploit global tax loopholes, and end up paying little or no tax.
France expects the new tax law to apply to about 30 multinationals, and bring in close to $450 million this year. It will target all internet companies generating sales of more than $845 million (750 million euros) – of which at least $28 million (25 million euros) is generated in the country.