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France set to tax big tech

France set to tax big tech

Words by Austen Hunt

France Sets a New Precedence

France’s tech tax marks a development in the global trend of addressing the inability of states to govern over multilateral tech giants. The inability of nations to effectively tax digital services is due to the competition present within an international market. Countries compete to attract corporate headquarters by offering lenient tax-codes, and the majority of profits are declared to have been generated within that jurisdiction. Thereby minimising tax and avoiding taxes on services administered on, or in, other nations.  The tax on global revenues legislated by France has outlined one directive which seeks to address this commercial imbalance, and has received regional and international support as global powers such as India and Singapore now consider similar directives.

Corporations have been able to avoid paying taxes on profits across the globe. In 2018, Netflix declared a profit of $845m in the United States of America and paid $0 income tax. A trend followed by other notable giants such as Amazon, which paid $0 in federal income tax despite recording $11B in profits. The ability of nations to adapt to the digital economy, ensuring tax on services, has been bought into question as tech companies continue to vertically integrate. 

This inertia has been challenged as France has successfully passed legislation which aims to reduce this corporate tax minimisation. French finance minister Bruno le Maire stated that the tax will generate €500m Euros in its first year, more conservative estimates place that figure at €400m.

The tax itself is directed towards corporate giants such as Google, Amazon, Facebook, and Apple. Following the failure to pass a regional levy on tech firms in the European Union - affectionately named the EU GAFA (EU Google, Apple, Facebook, Amazon) levy - France has adopted a position of leadership as it unilaterally takes action against tax minimisation practices.

The tax is directed towards any digital company that generates a revenue greater than €750m, of which at least €25m has been generated within France. The 3% tax will be placed upon the revenue of corporations rather than their profit, preventing tech firms from minimising their tax obligations by reallocating their profits among jurisdictions.

The move has invited a mixed response from the international community. The US has begun posturing itself to retaliate against what the Trump administration sees as an action which “unfairly targets American companies”. This contrasts the response of a regional and international caucus, which has signalled support for the directive.  

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A Stern Response

France’s ‘tech tax’ has incited a strong reaction from their American counterparts. American trade representative, Robert Lighthizer, has stated that US President Donald Trump “has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable”. This has prompted the use of a “section 301 investigation”, an inquiry into foreign acts which “violate, or are inconsistent with, a trade agreement”. The response has positioned America as taking a stance of protecting its corporate interests abroad, labelling the interests of the french tax-payer as “protectionist”.

The oldest ally of America, dating back to the 1778 Treaty of Alliance, the US-France relationship has been tested by the strongman politics which define today’s era. The speculation that America will pose retaliatory tariffs as it claims that France is pursuing “protectionist” policies is founded in the ‘one-upmanship’ nature which defines the Trump administration. The use of a section 301 investigation has been the catalyst to the US-China trade war, a dispute which has impacted global markets and destabilized international relations, and is now being employed against a country seeking to address corporate tax minimisation practices.

At present, France’s actions are unilateral. The tax, or similar versions of it, have not been passed in other member states of the EU or across the broader international. This isolation leaves France vulnerable to punitive policies from the United States, however, it has set a precedence that nations are able to re-envisage their tax codes to accomodate for their citizens interests in a digital economy.

A New Way Forward?

France has been the first nation to pass legislation which taxes the revenue of tech giants, but will it be the last?

France’s isolation in passing the tech-tax has left it vulnerable, however, it has also placed it in a position of leadership. France’s actions have garnered regional support from EU member states, such as the UK, Austria, Italy and Spain. The most direct endorsement coming from the United Kingdoms Chancellor of the Exchequer, Phillip Hammond, who has speculated that a similar tax would generate £400m for the UK. Reports have indicated that a UK version of the tech tax has been scheduled to be implemented by April 2020, however, is under consideration due to Brexit uncertainties.

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