Updated: January 22, 2020 8:51:48 am
On Monday, US President Donald Trump and French President Emmanuel Macron agreed to postpone an increase in tariffs between the two countries, Reuters reported. The tax dispute, which first arose in July last year, will now be decided by the end of 2020.
Macron tweeted, “Great discussion with @realDonaldTrump on digital tax. We will work together on a good agreement to avoid tariff escalation.” Trump retweeted, “Excellent!”
Explained: What is the US-France tariff dispute?
In July 2019, France imposed a 3 per cent tax on digital revenue earned in the country by tech firms having sales of more than EUR 750 million globally or more than EUR 25 million in France.
In retaliation, the Trump administration threatened to place tariffs of up to 100 per cent on USD 2.4 billion of French imports including wine, cheese, and lipstick.
France has since buckled under US pressure and agreed to postpone the enforcement of the tax, a Wall Street Journal report said.
Internationally, efforts have been underway to find out ways to tax tech revenues, since tech companies often pay little tax in countries in which they are not physically present, thanks to older tax regimes.
Apart from France, other countries such as Austria and Italy have introduced plans to tax online sales and advertising revenues. Canada and the UK have also been exploring possibilities to reform their policies, according to the WSJ report.
What happens now?
The two countries have now decided to not impose tariffs until the end of 2020.
They will, however, continue negotiations over digital taxes during the year at the Organization for Economic Cooperation and Development (OECD), a grouping of prosperous countries.
At the OECD, the US will try to arrive at a consensus over the issue in order to avoid its tech firms from being made to pay taxes in separate countries.
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