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Amazon is raising the fees it charges third-party sellers in France by 3 percent in direct response to the country’s new tax on tech companies. The tax was designed to help smaller companies better compete with tech giants like Amazon but the fee hike on sellers appears to have the opposite effect.

France’s new tech tax has earned the ire of the American tech industry and government. President Donald Trump’s administration launched an inquiry into the tax that could result in retaliatory tariffs.

“Because we operate in the highly competitive and low-margin retail industry and invest heavily in building tools and services for Selling Partners and customers, we cannot absorb an additional consumption tax that is based on revenues instead of profits,” an Amazon spokesperson said in a statement. “This tax is aimed squarely at the marketplace services we provide to businesses, so we had no choice but to pass it down to Selling Partners.”

Background: France passed the digital services tax last month despite loud opposition from tech corporations. It applies retroactively starting in January 2019 to tech companies with revenue of more than €750 million ($850 million) with at least €25 million generated in France. Those companies are required to pay 3 percent of sales made in France.

France’s reasoning: Many of the world’s largest tech companies are headquartered in the U.S. but they operate around the world. The French government wants to level the playing field between those companies and traditional businesses in the country by narrowing the gap between their tax obligations.

The U.S. position: Trump assailed the new tax as the French government prepared to approve it, indicating that the U.S. could impose new tariffs on France in response. His administration has launched an inquiry to find out whether the move is discriminatory. The U.S. government hosted a hearing Monday with representatives from Amazon, Google, Facebook, and tech trade groups as part of that investigation.

The regulatory landscape: Though there is a growing global awareness of the power and influence of Big Tech, Europe is leading the regulatory charge. The European Commission has fined Google billions of dollars for violating European competition law. Microsoft, Facebook, Amazon, and Apple have also absorbed hefty fines from the Commission. The European Union implemented sweeping data regulations known as GDPR in 2018 but France’s tax goes one step further. The U.S., meanwhile, is just beginning to investigate its tech industry over antitrust and privacy concerns.

Big picture: The Trump administration and tech industry are not always allies but the president is stepping in to shield Big Tech from France’s latest move. If the inquiry finds the tax is discriminatory and the Trump administration moves forward with tariffs, it could land the U.S. in trade wars with an ally country, in addition to its ongoing disputes with China.

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