What's going on?
America struck back against France’s controversial new tech tax late Monday – and big US firms will be celebrating.
What does this mean?
While it failed to gain European Union-wide approval, France went ahead and introduced a 3% “digital services tax” anyway in August. La République is keen to ensure tech giants pay a fair level of tax relative to the amount of business they actually do in the country. The idea is that they pay tax on revenues generated in France – relatively simple to calculate – rather than on profits that can be shifted to tax havens.
While France insists the new tax tackles firms from all countries – including China – the US views it as an unfair attack on American tech companies. And it’s threatening to bite back with 100% tariffs starting early next year on $2.4 billion worth of popular French products, from sparkling wine and cheese to makeup and handbags – effectively doubling their prices.
Why should I care?
For markets: A new front opens up.
France has vowed to retaliate against any new tariffs, and it might find support among its neighbors: the US has threatened other European countries planning digital service taxes with similar tariffs. But if this descends into yet more trade war, then European manufacturers – already struggling with existing battles – will hardly be cracking open the champagne. Less business with the US would make things decidedly less bubbly for Europe’s economy and its stock markets.
The bigger picture: What goes around comes around.
LVMH, the French producer of Moët bubbles and Louis Vuitton handbags, saw its stock price fall on Tuesday. And the luxury goods giant might soon have something else to worry about: if France is arguing that tax should be paid where revenue is generated – and is targeting Chinese tech firms accordingly – then what’s to stop China asking the same of LVMH, given the group makes nearly a third of its sales there?