France agrees to press pause on digital tax aimed at US tech companies

France and the US won't be escalating the digital trade war after all.

France levies 3% turnover tax on world's largest tech companies Tech companies making €750 million globally and €25 million in France will have to pay the new tax.

French President Emmanuel Macron and the US President Donald Trump have agreed to pause the digital trade war that had been brewing over the past few months between the two nations. 

Tensions escalated after France passed a digital services tax in the summer of 2019 targeting US tech giants, and the US recently announced retaliatory measures in the form of punitive tariffs on French products. 

But now Macron and Trump have said that no tariffs will come into force until the end of 2020, meaning that France will delay collecting the new tax, and the US will not introduce extra tariffs. 

SEE: IT pro's guide to GDPR compliance (free PDF)

In a tweet following talks between the two leaders, Macron praised a "great discussion on digital tax" and announced: "we will work together on a good agreement to avoid tariff escalation".

The French digital services tax is a 3% revenue tax designed to collect money from companies providing digital services to French citizens. It was dubbed "GAFA" in reference to its main targets: Google, Amazon, Facebook and Apple. 

The first payments were first collected last November and these won't be refunded. The French government had hoped that the tax would raise €500 million ($563 million) every year.

The Trump administration, arguing that the new law was an unfair levy on American companies, threatened to respond with $2.4 billion worth of tariffs on cheese, wine, champagne and other French products. 

The two countries have now agreed to delay their respective measures, although France only conceded under the condition that talks on digital taxation kept going at the Organisation for Economic Cooperation and Development (OECD).

The OECD has been discussing the issue since 2015, and although progress is slow, the organization is hoping that a deal will be signed before the end of 2020.

The announcement of the Franco-American truce will come as good news for OECD members, who worried that a digital trade war between the two governments would slow down negotiations.

SEE: Digital tax, trade wars, big tech: what's actually going on between Europe and the US?

Speaking on French radio channel LCI on Monday, the French finance minister acknowledged that discussing digital taxation with the US will be "very difficult", and that avoiding sanctions is a battle "far from won".

He is due to meet his US counterpart Steven Mnuchin on Wednesday at the World Economic Forum in Davos to discuss the next steps.