Tuesday, July 30, 2019

France's Digital Services Tax

On July 24, 2019, French President Emmanuel Macron signed the Digital Services Tax into law. 

As his finance minister Bruno Le Maire (right) said: “It’s in all of our interest to move toward a just taxation worldwide for digital companies”. 

This law requires tech companies to pay a 3 percent tax on revenue generated by digital services in the country – which would include companies like Facebook, Alphabet-Google, and Amazon. 

This promptly drew a rebuke from Donald Trump (left). “We tax our companies, they don’t tax our companies”, he insisted as he threatened to retaliate. 

The tax, retroactive to January, impacts companies with at least €750-million in global revenue and digital sales of €25-million in France. 

According to The Washington Post, that would affect nearly 30 companies around the world – and not just firms from the United States, but also include Chinese, German, British and French companies. 

France isn’t alone among European nations in arguing that internet companies aren’t paying their fair share into public coffers. Because they’re often domiciled in other countries – including low-tax jurisdictions, e.g. Ireland or Bermuda – and shift money seamlessly across borders, companies that sell online can easily avoid paying taxes in nations where they nevertheless make significant sales. 

France argues that the structure of the global economy has shifted to one based on data, rendering 20th-century tax systems archaic. According to 2018 figures from the European Commission, global tech companies pay a 9.5% average tax rate compared with 23.2% for traditional firms. 

While France is the first EU country to impose such a levy, it had said it would still prefer an EU-wide digital tax. 

[Note: France did push for a European Union-wide digital levy – it was scrapped when four countries: Sweden, Finland, Denmark and Ireland declined to sign off on it]. 

Now, other European countries and even Asian and Latin American countries are considering similar levies. 

If implemented, these proposals have the potential to shift billions of dollars from tech companies to local economies – and which is a good outcome to have. 

Besides, we should expect tech companies to pay their fair share of taxes because they have profited massively, given today’s digitalization of the global economy. Fair's fair!

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