US, France sidestep tax feud for now after G-7 confrontation

The U.S. and France agreed to push ahead with creating a global digital tax system at a Group of Seven meeting, papering over a feud on the matter that still has Washington dangling threats of tariffs.

French Finance Minister Bruno Le Maire said Europe had won a concession from the U.S. that changes to tax rules should address “highly digitalized business models.” With agreement on that language, the Organization for Economic Cooperation and Development can continue work to define a framework for taxation of companies such as Facebook Inc. as soon as January 2020, he said.

“The G-7 began in tense circumstances,” Le Maire said. “We have come back to a coordinated, multilateral approach that is more constructive as we have a concluded an ambitious agreement.”

His U.S. counterpart, Treasury Secretary Steven Mnuchin, was less enthusiastic, acknowledging “very good conversations” on the matter but also telling reporters that the Trump administration still has “big issues” with France’s approach.

Whatever common ground was found at the G-7 remains only an incremental step toward resolving differences that threaten to combine with and exacerbate broader transatlantic trade tensions. The U.S. last week began a procedure to determine whether France’s national tax on digital revenues is discriminatory and unreasonable, which could end with retaliatory tariffs or other trade limits.

France intended its national tax, voted last week in the French Senate, to unblock inertia in digital tax negotiations for 129 countries conducted at the OECD. Paris says it will abolish the national tax as soon as a global system is implemented.

In the OECD talks, the the U.S. has favored a broader approach to revamping international tax laws, while European countries wanted to target purely digital companies and the advantages they get from massive global networks.

In the meantime, Mnuchin isn’t backing down from the threat of U.S. retaliation.

”We’re going to run a two-track process,” he said, noting officials will continue investigating the French approach with a view to responding with tariffs. “Simultaneously we will continue our tax work with G-7 and OECD.”