France has accepted an electronic services taxation despite threats of retaliation from the US, which asserts that it unfairly targets American tech giants.
The 3% tax will be imposed on sales generated in France by multinational companies like Google and Facebook.
The French government has argued that these businesses headquartered outside the country pay little or no tax.
The US government has already ordered an inquiry into the move – which could result in retaliatory tariffs.
It’ll be retroactively applied from early 2019 and is expected to raise about $400m annually.
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Why goal tech giants?
At the moment, they can pay little or no corporate tax in nations where they don’t have a meaningful physical existence. They announce most of their profits where they are headquartered.
The European Commission estimates that on average traditional companies face a 23% tax rate on their gains within the EU, while net companies typically cover 8% or 9 per cent.
France has argued that taxes should be dependent upon digital, not just physical existence. It announced its tax on large technology companies last year following EU-wide efforts stalled.
An EU levy could need consensus among associates, but Ireland, the Czech Republic, Sweden and Finland raised to distrust.
France’s new 3 per cent tax will be based on earnings made in the nation, instead of on gains.
Chinese, Italian, British and Spanish firms are also affected, in addition to the French online marketing firm Criteo.
The French government claims that the tax will end if a similar step is agreed internationally.
The big tech companies have claimed they are complying with federal and worldwide tax legislation.
What has the US state?
The Trump administration denounced the move a day before the vote.
On Wednesday trade representative Robert Lighthizer said an evaluation would”determine whether it’s discriminatory or foolish and burdens or restricts United States commerce”.
He US query could pave the way for punitive tariffs, which Mr Trump has levied on several occasions since taking office.
Previous investigations started by Washington have coated European Union and Chinese trade practices.
Defending the tax on Thursday, French Finance Minister Bruno Le Maire said France was”sovereign and decided its own tax rules”.
“I wish to inform our American friends that this ought to be an incentive for them to accelerate even more our work to get an agreement on the global taxation of services,” he added.
Analysis by Dave Lee, BBC North America tech reporter
This”Section 301″ evaluation, as it is known, was used earlier as a way of finally implementing new tariffs on nations the Trump government feels is carrying the US for a ride.
If France is going to take hundreds of millions of euros from the pockets of American technology giants, the US argument may be, then why shouldn’t the US make more money from everything the French do in the united states? It took the same view with China and has buried itself into a trade war which has destabilised relations and can innovate further.
The electronic taxation is a danger for France, for it’s now isolated. There had been the discussion of a Europe-wide technology tax, but talks fell thanks in part to resistance from nations like Ireland, which has gained from being able to draw tech firms to prepare their European base in the country.
One thing all sides agree on, however, is that in our contemporary, electronic market, the overhaul of how firms are taxed is very long obsolete.
France will probably be hoping for just one of two results. Either country follows their guide and executes their own, independent legislation, limiting France’s vulnerability. Or the transfer gives added energy to calls for a multilateral agreement on how digital companies ought to be taxed globally, putting an end to the squirrelling-away of enormous amounts of cash created by internet giants.