France confirmed on Wednesday it will levy its tax on digital giants for 2020, following a warning by Economy Minister Bruno Le Maire in October that it would do so. With this decision, however, it risks US countermeasures at a time when it is scrambling for public money amid a devastating pandemic. EURACTIV’s partner Ouest-France reports.
“Companies subject to this tax have received a tax notice for the payment of the 2020 instalments”, and will pay the balance by “the beginning of 2021”, said France’s economy ministry.
Although Washington – which considers this tax discriminatory against US companies – has not yet reacted to the announcement, France will be exposing itself to US sanctions on $1.3 billion worth of French products, including handbags and cosmetics.
The US threatened France with retaliatory action after it adopted in July 2019 a 3% tax on the turnover of digital giants exceeding €750 million in global activity, making France a pioneer in taxing the so-called “GAFA” (Google, Amazon, Facebook and Apple).
While Paris decided to act without waiting for US President-elect Joe Biden, who is expected to have a more friendly approach to multilateralism, to take office on 20 January, it should not have come as a surprise.
“We had suspended collecting the tax until the OECD negotiations were concluded. These negotiations have failed, so we will collect a tax on the digital giants in December,” Economy Minister Le Maire warned in mid-October.
Paris and Washington concluded a truce in January based on a tax freeze in exchange for a freeze on sanctions, but France no longer considers itself bound by this agreement.
A tax to ‘redeem’ oneself
In Europe, the stalled negotiations on the European Recovery Plan are hardly a cause for optimism, as any decision on taxation requires the unanimous approval of all 27 EU member states, including the Netherlands, Luxembourg and Ireland, the countries to which the GAFA have transferred their profits in Europe, in order to pay as little tax as possible.
The French decision to collect taxes without delay can also be explained by the current pandemic, which is having a drastic impact on the economy. So far, it has already cost the state budget €186 billion, with €86 billion more in expenditure and €100 billion less in revenue.
The government urgently needs to find ways to replenish the state’s coffers, while meeting its pledge not to raise taxes.
However, the “tax on digital services”, which brought France €400 million in 2019, seems all the more justified since the GAFA are turning out to be the big winners in the pandemic. For instance, Amazon, already the largest online retailer in France, has taken advantage of the second lockdown to increase its market share even further.
And at a time when state coffers are drying up, reports that condemn the cost of tax optimisation for large companies and very high incomes (“the top 1%”) are multiplying.
The cost is estimated at $427 billion per year by the London-based Tax Justice Network, equivalent to the annual salary of 34 million nurses, in a recently published report.
It calls for a tax on the “excessive profits of large multinationals”, particularly “those whose profits soared during the pandemic, while small businesses were forced to close”.
“For the digital giants who claim to be committed to us, while they evade billions in taxes, this would be a way to redeem themselves,” said Tax Justice Network chief executive Alex Cobham.