US has said it will investigate planned levy on firms such as Amazon and Facebook

This article is more than 1 year old

This article is more than 1 year old

France has hit back at a US investigation into a new French tax on major internet companies, saying threats were not the way allies should resolve disputes.

The French parliament approved a law on Thursday that would make France the first major economy to impose a tax on internet heavyweights.

Dubbed the Gafa tax – an acronym for Google, Apple, Facebook and Amazon – the legislation will impose a 3% levy on the total annual revenues of the largest technology firms providing services to French consumers.

On Wednesday the law appeared to have opened a new front in a trade row between Washington and the EU when Donald Trump ordered an investigation into the tax, which could lead to the US imposing tariffs or other trade restrictions on France.

The French finance minister, Bruno Le Maire, responded when he addressed French senators on Thursday by saying: “Between allies, I believe we can and must resolve our differences in another way than through threats.”

He added: “France is a sovereign country, its decisions on tax matters are sovereign and will continue to be sovereign.”

Le Maire said he was warned about the investigation during a “long conversation” with the US Treasury secretary, Steven Mnuchin, this week. Le Maire said it was “the first time in the history of the relationship between the United States and France” that the US administration had decided to open such an investigation into French legislation.

He said earlier this year that a 3% tax on the French revenue of large internet companies could yield €500m (£450m) per year.

The UK is also planning a similar digital services tax of 2% on the revenues of search engines, social media platforms and online marketplaces serving UK customers, which is due to come into force next year. The tax would be applied only to companies with global revenues in excess of £500m and revenue of at least £25m from UK activities.

The proposals were detailed in the Treasury’s latest draft finance bill on Thursday, which is now out for consultation, and could risk a similar US reaction.

France has led a push for internet companies with significant digital revenue in the EU to pay more tax at source, but has made little headway as Germany is cool on the idea, while member states with low corporate tax rates such as Luxembourg and Ireland firmly oppose the proposal.

France has said it pressed on independently with its own tax because big internet companies such as Facebook and Amazon are able to book profits in low-tax countries no matter where the revenue originates from.

Paris has pledged to drop its tax as soon as an international agreement is reached at the Organisation for Economic Co-operation and Development to overhaul decades-old cross-border tax rules for the digital era.

Élysée officials have said the new tax is fair and it has been held up by the government as a way to address calls for tax justice from gilets jaunes (yellow vests) protesters.

Le Maire has said the tax would target 30 companies, mostly American – including Google, Apple, Facebook and Amazon – but also Chinese, German, Spanish and British ones, as well as one French firm and several with French origins that have been bought by foreign companies. The tax would affect companies with at least €750m in annual revenues and apply to income from digital business including online advertising.

“We are merely re-establishing fiscal justice. We want to create taxation for the 21st century that is fair and efficient,” Le Maire told senators. “We want to impose on these new business models the same rules that apply to all other economic activities.”

The Paris-Washington digital tax spat is separate from a long-running transatlantic trade row, but it could be used by Trump to try to obtain EU concessions on trade.

The US and EU have threatened to impose billions of dollars of tit-for-tat tariffs on planes, tractors and food in a nearly 15-year dispute at the World Trade Organization over aircraft subsidies given to the US planemaker Boeing and its European rival Airbus.

Trump has also imposed tariffs on imports of EU steel and aluminium – and has threatened punitive duties on cars and auto parts if the two sides fail to reach an overall trade deal.

Plans to open trade talks between Washington and Brussels have, however, been hampered by the US tariffs on steel and by EU states’ reluctance to include farm products in the talks.

The European commission has estimated that multinational digital companies with investments in the EU are on average taxed at a rate 14 percentage points below that of other firms.

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Other countries have plans for their own taxes on digital giants.

The UK chancellor, Philip Hammond, promised to introduce a digital sales tax in his budget last year to ensure “global giants with profitable businesses in the UK pay their fair share”.

He said the UK could no longer wait for “painfully slow” discussions at international level and would instead introduce a 2% tax on certain types of sales, which he said would raise £400m a year.