Macron and Trump declare a truce in digital tax dispute

Key Points
  • France and the U.S. have agreed to hold off on a potential tariffs war until the end of the year.
  • France decided in July to apply a 3% levy on revenue from digital services earned in France by firms with revenues of more than $28 million in France and nearly $832 million worldwide.
President Donald Trump and France's President Emmanuel Macron shake hands as they meet, ahead of the NATO summit in Watford, in London, Britain, December 3, 2019
Kevin Lemarque | Reuters

French President Emmanuel Macron said on Monday he had a "great discussion" with U.S. President Donald Trump over a digital tax planned by Paris and said the two countries would work together to avoid a rise in tariffs.

The two leaders agreed to the truce after Paris offered to suspend down payments for this year's digital tax and Washington promised to keep negotiating towards a solution rather than acting on a tariff threat, French sources said.

Specifically, Macron and Trump agreed to hold off on a potential tariff war until the end of 2020, a French diplomatic source said, and to push ahead with broader negotiations at the Organization for Economic Cooperation and Development to rewrite the rules of international taxation during that period.

"They agreed to give a chance to negotiations until the end of the year," the source said. "During that time period, there won't be successive tariffs."

France decided in July to apply a 3% levy on revenue from digital services earned in France by companies with revenues of more than 25 million euros ($28 million) in France and 750 million euros worldwide.

Washington threatened to impose trade tariffs on French Champagne, handbags and other goods in response. It complained the tax unfairly targeted U.S. internet companies, a claim Paris dismissed.

French authorities have repeatedly said any international agreement on digital taxation reached within the OECD would immediately supersede the French tax.

But concerned that the United States would snub the OECD negotiations and proceed with tariffs on French goods, France has offered to suspend until the end of the year down payments on its digital tax that would have been due in April.

"What we're proposing is to give ourselves time and to show our goodwill, to postpone the remaining payments to December," a French Finance Ministry source said.

Finance Minister Bruno Le Maire and U.S. Treasury Secretary Steven Mnuchin are due to negotiate the details in Davos, Switzerland, on Wednesday, the source added.

Talks between France and the United States on taxing digital companies "remained difficult," Le Maire said on Tuesday.

Le Maire said France's target was still to impose a minimum tax rate on companies that at the moment pay no levies or too little, in line with a proposal put forward last year by the OECD.

Le Maire said the truce agreed by the two presidents was a "very positive starting point" but now Paris and Washington had to reach a compromise on how to tax digital activities at a global level.

He said he would discuss details of a possible "definitive" deal with Mnuchin on Wednesday at the World Economic Forum in Davos, Switzerland.

"It remains a difficult negotiation. The devil is in the details, and on many details we still need to find a common ground, but I think we are moving in the right direction," Le Maire said in Brussels before a meeting of EU finance ministers where the EU's stance on digital taxation will be discussed.

France's objectives in the talks remained to reach a "fair taxation of digital companies and minimum taxation at international level," Le Maire added.

The White House said on Monday both Trump and Macron agreed it was important to complete the negotiations successfully.

Nearly 140 countries are to meet at the OECD at the end of the month to give their backing for the biggest rewrite of international tax rules since the 1920s, to bring them up to date for the digital era.

CNBC contributed to this report.