A representative for the French Finance Ministry informed the press today that multinational corporations subject to a new digital tax have been notified of a requirement to pay. The taxes are currently geared toward large online content services based on activities facilitated in France.
In 2019, the government enacted a 3% tax on revenue gained from online sales for third-party retailers, the sale of private data and digital advertising. The taxes are widely seen as an effort to claim money from Amazon, Facebook, Google and Apple, all of whom currently base EU operations in low-tax countries like Ireland. The taxes will allow France to reap a direct benefit from the activities in their country, which have been successful enough to squeeze out French companies attempting to provide similar services.
The taxes are expected to rise to about 12%, and are likely to grow to incorporate smaller multinational businesses which perform similar activity on lower levels such as Ebay, Alibaba, Etsy and Bing and plausibly downward to smaller levels (because taxation, once it is begun and brings in revenue, tends to expand… especially taxation which provides no burden on the subjects or citizens receiving the payments.)
The taxes are problematic for a variety of reasons, not least of which is the expansion of authority of foreign governments into any activity on the internet. “Governments”, because France is alone in collecting these taxes but far from alone in wishing to do so; more than 130 countries were involved in talks at the OECD (Organisation for Economic Co-operation and Development) regarding digital taxes when the discussions were sidelined by the US Treasury Secretary earlier this year. Moreover, Germany, Italy, and the UK are all prepared to quickly institute similar taxes should France see no significant response, as they are all seeking revenue to help offset the tolls of COVID-19 action.
The expected US response to the taxes, levied in large part on US companies without any agreement from the United States, is the raising of tariffs. The incoming administration of Joe Biden will be under pressure to remove tariffs, however, as they have been economically harmful to the United States. It is likely that France sees this as an opportunity to get its foot in the door for unrestricted foreign taxation, recognizing that Biden will be unlikely to want to keep the reprisal tariffs in place even though they are triggered by something other than Trump’s myopic foreign policy – especially as the source of the issue can be traced back to Mnuchin’s refusal to participate in negotiations.
