French Digital Services Tax: Trump Threatens Retaliation

Google (GOOGL) has a powerful backer in its protest against France’s digital services tax: Uncle Sam. US trade officials this week released a report on their investigation into the French digital services tax.

In the report, the trade officials concluded France is being unfair to American technology companies with its digital services tax. Therefore, they proposed that America retaliate with its own taxes on French products.

Trump threatened retaliatory tax on French goods

That clears President Donald Trump to impose tariffs of up to 100% on a range of French goods, including wine and cheese. It will be up to Trump to decide when to apply the retaliatory tariffs against the French digital services tax.

When it became clear that France was determined to proceed with its digital services tax, Trump threatened to hit back. He threatened tariffs on French wine as a retaliatory move. However, before Trump could implement his threats, the US and France reached a compromise on the tax dispute.

The French digital services tax comes into force next month

The French digital services tax will apply at the rate of 3.0% on digital services revenue generated in France. The tax will come into force next month. It targets companies that generate $25 million euros or roughly $28 million in revenue in France and $750 million euros or roughly $830 million in revenue worldwide.

So, Google and many other American big tech companies make the cut for the French digital tax. Google’s worldwide revenue came at $136.2 billion in 2018, meeting the global revenue threshold of France’s digital services tax.

Amazon (AMZN) generated worldwide revenue of $232.9 billion in 2018. Also, Facebook’s (FB) 2018 worldwide revenue came at $56 billion.

Google protested the French digital services tax

Google and fellow American big tech companies protested against the French digital services tax as unfair. Moreover, Google has gone as so far as to warn that the tax would be a recipe for disputes.

France’s digital services tax threatens to reduce Google’s earnings. This comes at a time when Google is trying to make every dollar of its profits count as it undertakes several capital-intensive projects. For example, Google is investing billions of dollars to develop the infrastructure for its cloud computing business. Additionally, Google-parent Alphabet continues to spend big on research and developments as it searches for new hit products that can fuel revenue growth outside the advertising market.