France will levy a 3% digital services tax on sales generated in France by multinational firms like Google and Facebook despite threats of retaliation by the US, which argues that it unfairly targets American tech giants. The new tax was approved by the French senate on Thursday (11 July), a week after it was passed by the lower house, the National Assembly. The country’s government has long criticized the fact that such firms headquartered outside the country pay little or no tax.
Any digital company with revenue of more than €750m, of which at least €25m is generated in France, would be subject to the levy. The digital services tax that will be retroactively applied from early 2019 is expected to raise about €400m this year only. But why has France decided to target tech giants? For the time being, they are able to avoid paying hardly any corporate tax in countries where they do not have a large physical presence, and they declare most of their profits in countries where they are headquartered. According to the European Commission’s estimates, while, traditional businesses on average face a 23% tax rate on their profits within the EU, internet companies typically pay only 8% or 9%. France’s new 3% tax will be based on sales made in the country, rather than on profits.
The Trump administration denounced the move a day before the vote (10 July) and ordered an inquiry into the new legislation, with US trade representative, Robert Lighthizer, saying that the investigation would “determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce”. The big tech companies have blasted the planned digital service tax, arguing they are complying with national and international tax laws. About 30 companies will pay the tax – mostly US groups such as Apple, Alphabet, Facebook, Microsoft and Amazon, but Chinese, German, British, Spanish and also French firms will also be affected. The French government says the tax will end if a similar measure is agreed internationally.