AMZN Amazon.com Inc

By Sam Schechner in Paris and Paul Hannon in London 

France's legislature gave final approval to a new tax on large tech companies like Alphabet Inc.'s Google and Amazon.com Inc., shrugging off the threat posed by a new U.S. trade probe into whether the measure discriminates against American firms.

France's Senate gave a voice vote to approve the new tax, the first in a series of proposed national taxes on digital services being debated across Europe. The vote came just hours after U.S. Trade Representative Robert Lighthizer said his office would investigate the tax under the same broad law the Trump administration relied on for its trade conflict with China.

French Finance Minister Bruno Le Maire dismissed the U.S. probe in an address to French senators ahead of the vote.

"France is a sovereign state. It makes sovereign decisions on tax matters and will continue to make sovereign decisions on tax matters," Mr. Le Maire said. "Between allies, we can and we must resolve our disputes without resorting to threats."

The Franco-American dispute raises tension as the two countries participate in a new round of multilateral talks under the aegis of the Organization for Economic Cooperation and Development about how to overhaul the corporate taxation system for the digital age.

France and other European countries want a system that allocates more of Silicon Valley's profits to their territories for taxation. The U.S. wants to avoid a patchwork of unilateral taxes and opposes measures that target digital companies in particular.

Mr. Le Maire reiterated Thursday his pledge that France will repeal its new tax once a "credible agreement" is reached at the OECD, and said that France's proposal should give the U.S. an additional incentive to negotiate such an agreement.

"Let's accelerate work at an international level," Mr. Le Maire said. "Let's find a solution at the OECD level, and work via agreements rather than threats."

Tech companies and their lobbyists have opposed the French tax and voiced support for the U.S.'s pugnacious response.

Amazon said it applauded the Trump administration for "taking decisive action against France and for signaling to all of America's trading partners that the U.S. government will not acquiesce to tax and trade policies that discriminate against American businesses."

The Information Technology Industry Council, which represents Facebook Inc., Google, Amazon and other tech companies has rallied against digital tax proposals in France and other countries. Jennifer McCloskey, vice president of policy for the group, said she supported the probe but urged the U.S. to proceed "in a spirit of international cooperation and without using tariffs as a remedy."

A spokesman for Facebook declined to comment and Google didn't respond to requests for comment. In the past, the companies have said they pay all the taxes they owe under current rules, but support multinational efforts to overhaul the corporate tax system.

The new French measure, which is retroactive to the beginning of 2019, will apply a 3% tax on revenue that companies reap in France from such activities as undertaking targeted advertising or running a digital marketplace. It is unusual because it will apply to gross revenue in France from certain digital activities, somewhat like a sales tax, rather than taxing companies' profits after expenses.

The French government put forward its law in March after the European Union failed to agree on a similar measure. Several other countries are following suit, arguing that tech companies pay too little corporate tax under current rules, and that interim taxes are necessary until an international agreement is reached.

The U.K., for instance, Thursday published draft legislation that would impose its own digital-services tax in 2020 unless an international agreement is reached by then, according to a person familiar with the matter.

"We've been clear that our strong preference is for a global/OECD solution," a spokesman for the U.K. Treasury said. "Once an appropriate global solution is in place, we will no longer need our own digital services tax."

The OECD's top tax official played down the impact of the spat between the U.S. and France.

"I am not sure that the escalation of the dispute between the U.S. and France jeopardizes progress toward a global solution," said Pascal Saint-Amans, the OECD's senior tax official. "I would even think it is the contrary. That said, this is an extraordinary complex project and it is hard to know how things will evolve."

Write to Sam Schechner at sam.schechner@wsj.com and Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

July 11, 2019 09:54 ET (13:54 GMT)

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