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France and Trump agree to temporary truce on digital tech tax

France and the US intend to negotiate a solution with the goal of avoiding a tariff war.

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- 01:23
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Presidents Emmanuel Macron and Donald Trump are working toward an agreement.

Ludovic Marin/Pool/AFP via Getty Images

France and the US have agreed to a temporary truce over the European country's tax on digital technology companies. 

The 3% tax, introduced by France last year, applies to companies with revenue of more than 25 million euros ($28 million) in France and 750 million euros ($832 million) worldwide. It attracted the ire of US President Donald Trump, who interpreted it as a direct attack on the success of US tech giants. He threatened to retaliate by imposing tariffs on French goods, including Champagne and handbags, imported to the US.

But Reuters reported Tuesday that the presidents of both countries had agreed to delay taking action on the issue. The decision comes after a phone call between the leaders on Sunday night, after which France's president, Emmanuel Macron, tweeted that the pair had enjoyed "a great discussion" about the digital tax.

France will now hit pause on collecting tax payments from US companies, meanwhile the US will delay imposing tariffs. In the intervening period the two countries intend to negotiate a solution with the goal of avoiding a tariff war. 

Before the end of the year, it's likely that the French tax law could be superseded by a rewrite of international tax rules by the Organization for Economic Cooperation and Development. This is due to begin during a meeting at the end of January attended by almost 140 countries.

Ministers for France and the US will meet at the World Economic Forum in Davos, Switzerland, this week to discuss the matter further.

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