From a fair EU digital tax to an unfair French digital tax : a GAFA tax standoff for the US
Updated: Mar 24, 2019
France will go its own way with its tax targeted at GAFA companies by introducing a bill that would be retroactively applied as of January 1st 2019.
Paris has been driving hard for a so-called "GAFA tax" nicknamed after Google, Apple, Facebook and Amazon to ensure the global internet giants pay a fair share of taxes on their huge business operations in Europe. France expects to collect $452 million in 2019 through a new digital tax that targets 30 Big Tech companies.
France unveiled draft legislation that would set a 3% levy on digital advertising, the sale of personal data and other revenue for tech groups with more than 750 million euros ($844 million) in worldwide revenue. This France’s digital tax is part of a broader movement by European countries to profit from the revenue windfall that tech companies like Facebook, Google, Apple, and Amazon earn in their countries as economic activity increasingly moves online.
The move comes as the European Union tries to finalise an EU-wide levy with the OECD.
"We are working on a tax that would affect internet service companies with global sales of more than 750 million euros ($850 million) and 25 million euros in France," says Economy and Finance Minister Bruno Le Maire. On march 6, the French government introduced a 3% digital-services tax on tech giants that earn hefty revenues in France through targeted ads or digital marketplaces.The tax will apply to tech companies whose annual global revenues top $850 million, and at least $28 million in France.
"We think the whole theoretical basis of digital service taxes is ill-conceived and the effect is highly discriminatory against US-based multinationals," Chip Harter, a Treasury official and US delegate for global tax talks, said in Paris on march 12. The US warned it was considering a complaint at the World Trade Organization over "discriminatory" new taxes on American digital giants such as a Facebook and Google planned by France and other EU nations.
Speaking ahead of two days of talks on the issue in Paris, Harter outlined that "various parts of our government are studying whether that discriminatory impact would give us rights under trade agreements and WTO treaties."
"We would very much hope to avoid it, and we are monitoring developments here, and we will have to just see how events unfold in terms of both what is adopted by different countries, and how much progress is being made at the OECD," he underlined.
The OECD (the Organisation for Economic Cooperation and Development) is trying to forge a new global agreement (set to be applied on 2022) on taxing technology and digital giants which often declare their income in low-tax jurisdictions, depriving other countries of billions in revenue. That overhaul is expected next year at the earliest, assuming a consensus can be reached among the 127 countries taking part in the talks.
"We do understand there's political pressure around the world to tax various international businesses more heavily, and we actually agreed that that is appropriate," Harter highlighted. "But we think it should be done on a broader basis than just selecting a particular industry," he added.
France is in a vanguard of countries planning its own digital tax after efforts to introduce an EU-wide levy failed because of objections from low-tax jurisdictions such as Ireland.
About 30 companies from the US, China, Germany, Spain and Britain as well as France are set to be affected by the new French tax if it passes parliament.
US officials have said they support the multilateral tax overhaul being spearheaded by the OECD, which could ressemble a proposal to set a minimum tax of 10 to 13 percent for companies in the US.
That would give nations a bigger cut from multinationals' by limiting the attractiveness of offshore havens and low-tax regimes.
But Harter said while in Paris that unilateral action like France's would only make it harder to secure a comprehensive deal.
"A DST (Digital Services Tax) simply is so narrow that it doesn't address the fundamental issues facing the international tax system," he warned.
"The challenges... are just far broader than how to tax social media and search engines," he added.
"Our hope is that rapid progress at the OECD combined with a committment that an OECD deal would supplant any unilateral actions may get us to where we need to be."
This French "Digital Services Tax" bill (n°1737) is expected to be presented, for a first round, at the Finance Committee in French Parliament on April 2nd and 3rd 2019.