By Natalia Drozdiak in Brussels and Sam Schechner in Paris 

Europe is zeroing in on U.S. tech companies amid rising trans-Atlantic trade tensions.

France on Wednesday petitioned to fine Apple Inc. and Alphabet Inc.'s Google for allegedly taking advantage of smaller French software developers. A complaint filed by the finance ministry asked a Paris court to order the companies to end "abusive commercial practices."

In Brussels, the European Union next week plans to announce two new legislative proposals to increase taxes on tech giants.

Although the EU has been working on the new rules since last year, the announcement of the proposals, which will hit squarely at the U.S.'s largest tech firms, comes as tensions between Brussels and Washington have escalated over trade.

The European Commission, the EU's executive body, has warned it will take countermeasures against the U.S. if it is not exempted from plans by President Donald Trump to impose tariffs on steel and aluminum imports.

The U.S. has also recently passed a tax overhaul that could hit European tech and pharmaceutical firms operating in the U.S. Each side has accused the other of protectionism, raising the specter of a trade war.

"Don't consider this aggressive from us," said Pierre Moscovici, the European Commission's economy chief, in an interview about the EU's tax plans. "It's not an anti-American measure. The fact is that some of those companies are American. It's not protectionist. It's about fair taxation."

The EU wants to modernize corporate tax-rules, which traditionally have been based on physical assets and where a company operates. The commission wants to account for virtual operations, such as targeted advertisements a search-engine sells using data collected in a country where it has no permanent establishment.

As part of the EU's tax package, it will likely tax tech firms' revenue, as opposed to profit. The legislation could be short-term, preceding broader changes defining permanent establishment in the virtual world.

EU officials, who are still completing the details of the package, said the tax rate for the short-term measures could fall between 1% and 5% and could target revenue based on where users are located. Mr. Moscovici said the new rules would avoid any risks of double-taxation as well as unnecessary burdens on smaller businesses.

France has led the push to increase taxes on the tech companies, calling on the commission to propose the short-term measures. French Finance Minister Bruno Le Maire and others argue that tech giants use legal loopholes to shift too much profit to low-tax jurisdictions, and that Europe must tax revenue instead until laws can be changed to stamp out such practices.

The move in Paris come after U.K. Treasury Chief Philip Hammond confirmed Tuesday that he is intending to press ahead with plans to explore the merits of tweaking the way corporation tax is levied on tech multinationals operating in the U.K.

Paris has sharpened its rhetoric against U.S. tech companies in recent months. On Wednesday the finance ministry filed the complaint against Google and Apple, following a three-year government investigation into how the Silicon Valley companies treat French startups that develop and sell applications for mobile phones. Some developers and publishers are unhappy that Apple and Google can at times take a portion of in-app purchases and get access to more data on their users and subscribers than the developers do.

"We believe our terms comply with French laws and are looking forward to making our case in court," a Google spokeswoman said. Apple didn't immediately respond to requests for comment.

The French finance ministry says there is no connection between taking on tech firms and new U.S. tariffs or taxes.

Still, some EU officials have cautioned that the EU's new tax rules could be perceived by Washington as a form of retaliation against Mr. Trump's tariffs, particularly if the bloc doesn't pursue a long-term agreement at a global level with the Organization for Economic Cooperation and Development. The OECD is a forum of wealthy countries, which includes EU countries, Japan and the U.S.

"It's difficult for the Europeans to guess what the reactions of the Americans will be and what context they are going to set this," said Pierre Gramegna, Luxembourg's finance minister. "And that's why it's so important that this is being done at OECD level."

The European Commission will join finance ministers from the Group of 20 countries this weekend, where they are expected to discuss digital taxation, including a report drafted by the OECD on the subject. Some finance ministers said they hoped the commission would take the report into consideration ahead of plans to unveil the new tax rules on Wednesday.

Mr. Moscovici said he was hoping for a common approach with the non-EU countries but the EU was taking immediate action since legislation would need to be adapted to various economies and their different structures.

It's unclear how much success the commission will have with its proposals. The EU has struggled for years to close tax loopholes because all its member countries, including low-tax jurisdictions like Ireland and higher ones like Germany, must agree unanimously on tax matters.

Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and Sam Schechner at sam.schechner@wsj.com

 

(END) Dow Jones Newswires

March 14, 2018 12:35 ET (16:35 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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