“Excellent!” That was @realDonaldTrump’s tweet early Tuesday—brief by the U.S. President’s standards—in reference to a supposed truce pausing France’s tax on U.S. tech giants. That came after French President Emmanuel Macron tweeted on Monday evening that he and President Trump had had a “great discussion on digital tax. We will work together on a good agreement to avoid tariff escalation.”
Such are trade talks in 2020: Tweet, retweet, and trumpet a success.
Yet much was left unsaid, and a whole lot remains undone. “An agreement is something that 25 lawyers have agreed to, and eventually two guys in suits sign it,” one person in Europe, who has sat in on years of negotiations, told Fortune on Tuesday, speaking on condition of anonymity. Such a signing ceremony, he said, could be a long way off.
Trump and Macron’s telephone call was a last-ditch scramble to avoid a fresh U.S.-France trade war over digital taxes.
Last year, France imposed taxes on major tech companies, taxing 3% of revenues generated in the country. While the measure was aimed at all major companies, no matter where their headquarters were, the French immediately nicknamed it “la taxe GAFA,” for Google, Apple, Facebook, and Amazon. All four companies, as well as many others, have for decades used complex accounting acrobatics to avoid paying billions of dollars in taxes in countries where they have huge dealings. Italy, Austria, and the U.K. have all announced that they plan to follow France’s example.
Trump, who saw Macron’s tech tax as as a direct hit on Silicon Valley, announced last month that he would retaliate with 100% tariffs on French goods like cheese, wine, and Champagne. “I’m a tariff man,” Trump tweeted last month. “It will always be the best way to max out our economic power.”
But Trump had not reckoned with the fury from American importers, who would be directly responsible for paying Trump’s retaliatory tariffs, at the risk of losing business. Thousands of American wine merchants and distributors flooded the U.S. Trade Representative’s inbox last month with pleas to halt the trade-war talk, and to avoid the threatened 100% tariffs. “It will pretty much mean the destruction of the modern wine industry as we know it,” Steve Melchiskey, president and owner of USA Wine West LLC, from his base in Portland, Maine, told me after I visited wineries in Burgundy.
For now, Macron and Trump seem to have stepped back from the brink. U.S. Treasury Secretary Steven Mnuchin and French Economy Minister Bruno Le Maire are due to meet on Wednesday to thrash out the details, on the sidelines of the World Economic Forum in Davos.
But the challenge that inspired Macron’s tech tax in the first place shows no signs of fading: how to compel global companies to pay their fair share of taxes. That issue is sure to continue heating up, especially as protesters from Santiago to Paris storm the streets to rail against economic injustice.
The figures are indeed head-spinning. International Monetary Fund researchers estimate that countries lose more than $600 billion a year in revenues as a result of global corporations not paying taxes in the countries where they do business.
The problem extends far beyond Big Tech. Buy a Zara dress in Milan, for example, and the revenue is registered to the company’s entity in low-tax Luxembourg. Mine copper in Zambia, and the resulting revenue might accrue to a parent company in Switzerland, rather than that African country, where per capita income is $8,000 a year.
Such glaring disparities exploded into public consciousness after the 2008 financial crisis, when sweeping job losses and cuts to public services in the U.S. and Europe made corporate tax schemes far harder to ignore.
“By 2012, public anger was much greater,” says Alex Cobham, an economist and chief executive of the London-based Tax Justice Network, an international network of experts working against tax avoidance. “There was a global consensus that something had to be done.”
But Macron’s agreement with Trump not to tax tech giants—for now—hangs on governments agreeing jointly to a new global arrangement on corporate taxes: Instead of each country trying to impose its own taxes, countries would jointly agree to tax companies at a certain minimum rate, in an attempt to stop them from shopping around for tax havens, from the Caribbean to Singapore.
Next week top tax specialists from about 135 governments will meet in Paris at the Organization for Economic Cooperation and Development for talks on how to overhaul global corporate taxes—an issue the OECD has grappled with for about eight years. The idea is to rework an international system that has lasted for nearly 100 years, and which has long allowed companies to set up separate entities in different parts of the world, thus shifting their profits from high-tax countries to low-tax ones, no matter where the money is made.
Now, even tech giants themselves are pushing for change, perhaps realizing that unless the OECD negotiates new global rules, they might face dozens of different new national taxes, along the lines of Macron’s GAFA measure.
“It is very complex to know how to tax a multinational,” Apple CEO Tim Cook said on Monday, in Cork, a port city in Ireland, a low-tax country where the company has located key parts of its business since 1980. “We desperately want it to be fair.” The EU fined Apple 13 billion euros (about $14.3 billion) in 2016 for its ultralow tax agreements with Ireland.
But what “fair” means is a matter of deep dispute among CEOs and government officials.
Cobham says he fears that the OECD talks—in which U.S. companies and officials will play a large role—could finally result in a global corporate minimum tax rate that is far below what his organization and other NGOs have long argued for. Trump’s 2017 tax reforms included a 12.5% corporate tax rate, which the OECD has mentioned as a possibility for its new global rules.
“We could end up with something that in terms of real revenue will not go very far,” Cobham says. Even so, he says it would be a good start. “The energy to do something more serious will not dissipate.”
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