France to Impose Digital Tax This Year Regardless of Any New International Levy

Nearly 140 countries from the OECD are negotiating the first major rewriting of tax rules, to take better account of the rise of big tech companies.

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France to Impose Digital Tax This Year Regardless of Any New International Levy

Europe has pushed to make tech companies doing business over internet pay tax where they sell services

Highlights
  • Past attempts to create an EU-wide digital tax have failed
  • Ireland, where many companies are based has opposed a digital tax
  • OECD countries are negotiating the first major tax rules rewriting

France will tax big digital businesses this year whether there is progress or not towards an international deal on a levy, its finance minister said on Thursday, adding such a tax had never been more legitimate or more necessary.

Nearly 140 countries from the Organisation for Economic Cooperation and Development (OECD) are negotiating the first major rewriting of tax rules in more than a generation, to take better account of the rise of big tech companies such as Amazon, Facebook, Apple, and Google that often book profit in low-tax countries.

Paris offered in January to suspend its digital tax on tech companies' income in France until the end of the year while any international deal was negotiated.

However, the fallout from the coronavirus outbreak has left finance ministries most focused on saving their economies, potentially jeopardising the end of the year deadline.

"Never has a digital tax been more legitimate and more necessary," Finance Minister Bruno Le Maire told journalists on a conference call, adding such companies were doing better than most during the coronavirus crisis.

"In any case, France will apply as it has always indicated a tax on digital giants in 2020 either in an international form if there is a deal or in a national form if there is no deal."

In the Czech Republic by contrast, Finance Minister Alena Schillerova said she may delay the introduction of a digital tax until next year, to take advantage of any international rule, and lower the rate to 5 percent from a currently proposed 7 percent.

France's national tax has been a source of contention with Washington, which considers that it unfairly targets US digital companies.

Pay up
Europe has long pushed to make hugely profitable large tech companies doing business over the internet pay tax where they sell their services, rather than in tax havens deliberately chosen under what is called "aggressive tax optimisation".

EU politicians, seeking funds to prevent climate change and diminish wealth differences across the 27-nation bloc, want to see a company like Google, with an annual global revenue of more than $160 billion (roughly Rs. 12.13 lakh crores), pay more tax in the European countries where it makes money, preferably at a uniform rate.

Frustrated with the lack of global progress because of opposition from the United States where the tech giants are based, some countries like France introduced their own digital tax last year. Italy, Britain, and Spain have also either already introduced their own digital taxes or plan to do so.

Such moves triggered threats of retaliation via trade tariffs from Washington.

The urgency for a solution is increased by the COVID-19 pandemic, which triggered lockdowns around the globe and a shift to working from home. This is likely to boost the revenues of Internet giants but also makes EU governments even more in need of cash to restart their economies from their deepest ever recession expected this year.

Past attempts to create an EU-wide digital tax have failed in the face of opposition from Ireland, where many big US tech companies book profits, and some Nordic countries.

© Thomson Reuters 2020


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