Last July, France levied a 3 percent income tax on American tech giants like Amazon, Alphabet, Microsoft, Facebook and Apple. The country’s new tax law targets digital service companies who generate at least 750 million euros globally – with state sales of 25 million – in annual revenue. The move was made independent of the EU, though they have also sought to tax these companies in the past.
The move comes just prior to Google’s recent September 12th settlement, in which the tech giant agreed to pay 965 million euros to end two French investigations after years of outrage in Europe over the small amount of tax the company pays.
France hopes its new policy will be temporary, as what it really wants is for the Organisation for Economic Cooperation and Development (OECD) to broker a global agreement. The goal would be for OECD to establish an effective taxation strategy for internet technology companies that currently use complicated multi-national structures to shift earnings to low-tax jurisdictions.
The French government anticipates that these changes will generate approximately 400 million euros this year, and about 650 million in 2022. However, the reality has fallen far short of expectations. The creation of this tax has resulted in a major dispute with the United States, who responded by opening a Section 301 investigation. The French Finance Ministry is currently engaged in talks with US authorities in regards to the tax, but has made clear that its main priority is to support the OECD in their efforts to create an international system that will handle profits generated from online activity.
Macron’s former digital affairs minister Mounir Mahjoubi, now a lawmaker in the National Assembly, wants to force these corporations into revealing exactly how much profit they’re making in France. Mahjoubi suspects that these companies are significantly understating their activities and earnings to the state in order to dodge the tax man. He plans to file an amendment requesting disclosure for the budget bill lawmakers are set to discuss. Otherwise, the new tax may only generate half the income it’s expected to. According to his calculations, Mahjoubi anticipates the government will raise close to 1 billion euros next year via this tax. In comparison, the five leading internet companies only paid a combined 130 million euros last year.
“I want lawmakers to have the tools to pressure the government when it is negotiating with other countries for fair taxation at a global level”, Mahjoubi said in an interview. “It’s parliament’s role to help the government to improve their legislation. So, I am keeping open the possibility of filing an amendment to force the companies to be transparent here.”
France led the way, but now the EU is getting on board. Incoming EU commissioners have said that if a global arrangement for taxing tech giants isn’t ready by the end of the year, the bloc will establish one for themselves.
Commissioners-designate set to take power in November – vice-president Margrethe Vestager and Italian Democratic Party president Paolo Gentiloni – recently stated that fiscal rules and financial reforms are two of their top priorities. This includes efforts to overhaul corporate taxation rules – especially when current laws are insufficient to address the massive profits made by these global entities. The complex situation is exacerbated further due to each EU state handling taxation in a different manner.
Progress was made last year when France and Germany came to an agreement on taxing giant digital tech companies. Finance Minister Bruno le Maire told France Inter radio then that “We are close to having a deal in our hands” and was confident that Germany would back their agreement, although the country has since cooled off its support.
Ireland, however, stood against the arrangement. The country is known as a European tax haven for some of the world’s largest tech companies due to its lenient laws – a status it is reluctant to give up. Irish Finance Minister Paschal Donohoe questioned, “What kind of reaction would this bring if this was a model that was imposed on us?” Sweden and Denmark were also against the proposal for various reasons.
“If no effective agreement can be reached by the end of 2020, the EU should be willing to act alone” on a digital tax, said Vestager. Paolo Gentiloni, who is poised to become the EU’s Commissioner for the Economy, also said that he will be looking to prevent individual EU governments from vetoing tax-related decisions made by the Union, which is a major legislative obstacle to the project.