{"id":19506,"date":"2020-02-02T09:30:57","date_gmt":"2020-02-02T09:30:57","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=19506"},"modified":"2020-02-04T04:40:08","modified_gmt":"2020-02-04T04:40:08","slug":"france-us-skirmish-over-amazon-digital-tax-shows-why-the-century-old-international-tax-system-is-broken","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/france-us-skirmish-over-amazon-digital-tax-shows-why-the-century-old-international-tax-system-is-broken\/","title":{"rendered":"France-US skirmish over Amazon digital tax shows why the century-old international tax system is broken"},"content":{"rendered":"

Ruth Mason<\/a>, University of Virginia<\/a><\/em><\/p>\n

France and the U.S. have managed to avoid<\/a> turning their recent trade skirmish into a war \u2013 for now.<\/p>\n

The dispute involves France\u2019s decision last summer<\/a> to unilaterally reach outside the United States-French tax treaty framework to tax U.S. tech companies like Google, Amazon, Facebook and Twitter. Calling the French tax an illegal trade practice<\/a>, the U.S. vowed to retaliate with 100% tariffs<\/a> on a broad range of French products.<\/p>\n

After talks in January<\/a>, French President Emmanuel Macron and President Donald Trump appeared to reach a truce. France agreed to delay the digital tax until the end of the year, and the U.S. won\u2019t impose more tariffs.<\/p>\n

The truce allows time for tax officials from nearly 140 countries<\/a> including France and the U.S. to hammer out a deal to modernize the international tax system. On Jan. 31, they agreed to push ahead with negotiations<\/a> to rewrite global cross-border tax rules by the end of the year.<\/p>\n

So, for the moment, your brie and bordeaux<\/a> are safe.<\/p>\n

As a tax professor<\/a>, I applaud the willingness of France and the U.S. to negotiate. The problems with the international tax system can\u2019t be resolved by these two countries alone.<\/p>\n

That\u2019s because the current rules based on century-old tax treaties are ill-suited to the demands of the digital economy and need urgent reform.<\/p>\n

\"\"
Your plate of exotic French cheeses is safe from high tariffs for at least a little while longer.<\/span>
\nhlphoto\/Shutterstock.com<\/span><\/span><\/figcaption><\/figure>\n

A discriminatory tax<\/h2>\n

In March 2018, the the European Union<\/a> proposed a 3% tax on certain gross profits of the world\u2019s largest digital companies, regardless of whether those companies had a physical presence in a country.<\/p>\n

Although tech-friendly European countries including Ireland and Sweden blocked the EU tax, France passed its own version<\/a> in July 2019. Like its EU model, the French tax applies disproportionately<\/a> to U.S. tech giants<\/a> by targeting companies with at least US$750 million in revenue that sell online ads, user data or operate a digital marketplace.<\/p>\n

France argued that it needs digital taxes to force tax-dodging U.S. companies<\/a> to pay their fair share. But U.S. officials complain that digital taxes are protectionist, discriminate against U.S. companies and double-tax them<\/a>.<\/p>\n

And such unilateral digital taxes may even violate EU law, as I\u2019ve argued elsewhere<\/a> with a colleague.<\/p>\n

\"\"
U.S. tech companies like Amazon are considered the main target of digital tax laws.<\/span>
\nMichel Stoupak\/NurPhoto via Getty Images<\/span><\/span><\/figcaption><\/figure>\n

An obsolete rule<\/h2>\n

The U.S.-French digital tax dispute is part of a larger conflict that embroils every country.<\/p>\n

Modeled on a framework developed in the 1920s<\/a>, a large network of bilateral tax treaties forms the backbone of the international tax system. Under these treaties, a country cannot tax a foreign company unless it has an office, store or other physical presence in the country.<\/p>\n

Today\u2019s digital companies earn significant profits in countries where they have no physical presence<\/a>. The result is that nations like France and others around the world, which have large markets<\/a> for digital services, receive little or no income tax from these tech businesses.<\/p>\n

And the problem isn\u2019t limited to web services. Online retailers like Amazon take orders from Paris residents over the internet but avoid having a physical presence by hiring third parties to deliver Parisians their jeans and shower curtains.<\/p>\n

Frustrated with the physical presence requirement, at least 36 countries<\/a> including the U.K. and India have enacted or proposed<\/a> their own taxes to get around the rule, according to advisory firm KPMG.<\/p>\n

But such unilateralism increases complexity, subjects companies to double taxation, slows growth and hampers trade.<\/p>\n

\"\"
Big automakers like Tesla could also be affected by the OECD tax rewrite.<\/span>
\nSheila Fitzgerald\/Shutterstock.com<\/span><\/span><\/figcaption><\/figure>\n

A global problem<\/h2>\n

Fortunately, there\u2019s an effort underway to fix the problem.<\/p>\n

The Organization for Economic Co-operation and Development is leading talks involving 137 countries<\/a> to modernize the international tax system to allow countries to collect taxes even when companies lack a physical presence within their borders.<\/p>\n

The governments have in principle agreed on a framework<\/a> to design a new system and set a minimum corporate tax rate. The new rules would affect not only tech giants<\/a> like Amazon and Apple but also many other large companies such as luxury goods maker LVMH and automakers Volkswagen and Tesla.<\/p>\n

Agreement has been hard to find, however, in part because avoiding double taxation means that an increase in tax by some countries necessarily will result in a loss of tax by others. Fearing disproportionate impacts on U.S. companies and government revenue, the U.S. has been a particularly reluctant participant<\/a>.<\/p>\n

But things will only get worse for the U.S. if it refuses to budge.<\/p>\n

We do not yet know the outcome of the bargaining in Paris, but one thing is clear: The 100-year-old tax system is unlikely to survive intact. If countries cannot agree on a broader reform, they will continue to take matters<\/a> into their own hands.<\/p>\n

[Deep knowledge, daily.<\/em> Sign up for The Conversation\u2019s newsletter<\/a>.]\"The<\/p>\n

Ruth Mason<\/a>, Edwin S. Cohen Distinguished Professor of Law and Taxation, University of Virginia<\/a><\/em><\/p>\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Ruth Mason, University of Virginia France and the U.S. have managed to avoid turning their recent trade skirmish into a war \u2013 for now. The dispute involves France\u2019s decision last summer to unilaterally reach outside the United States-French tax treaty framework to tax U.S. tech companies like Google, Amazon, Facebook and Twitter. Calling the French […]<\/p>\n","protected":false},"author":44,"featured_media":19507,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,277],"tags":[7621,7619,2229,715,1743,7618,7620,434,570],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/19506"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=19506"}],"version-history":[{"count":2,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/19506\/revisions"}],"predecessor-version":[{"id":19524,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/19506\/revisions\/19524"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/19507"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=19506"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=19506"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=19506"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}