Tariff-ying French Digital Taxes
Tech firms are global by default, and upon encountering Europe’s pothole-laden tax code, a “drive 75mph in a 60 zone” culture has quickly arisen. In back alley havens like Ireland and the Virgin Islands, billions have been “hidden” from the taxman, many claim. To recoup lost money from US tech giants and to fix the loopholes, France is writing up a few hundred more pages of tax code. We’re talking about a “tech tax!”
Before we investors get our hands on the goodies from our companies, we’re forced to grin and bear the costs of making the product, paying employees, paying interest on debt, repairing and replacing big machinery, and of course paying tax. Every stock picker craves the path of least resistance from top-line to bottom-line, so the whims and ways of the taxman mean a lot.
Clever tax avoidance is helping Big Tech boom in the US and thus elevate 401ks, doing President Trump a huge favor in key swing states for the up and coming election. He’ll be damned if Article L.314-1 of the French Code General des Impôts scuppers his chances of a second term!
In an eye-for-an-eye move, the White House is striking at the heart of what it assumes the French economy runs on. Billions of euros-worth of cheese, champagne, and designer fashion accessories have been threatened with 100% import taxes.
Unless French brands have miraculous pricing power (they don’t) or can absorb the tariffs themselves, the price of some products could double in US stores. That’s pretty bad for business, and it explains why shares in Louis Vuitton Moet Hennessy (LVMH), Christian Dior, and Hermes nosedived today. Airbus, by the way, was hit like a ton of bricks by the news.
Is the US President blowing smoke or is this start of another American trade war? A short or long LVMH or Hermes trade hinges on your fortune telling, so what’s it going to be?