Welcome
Daily Tax Report: International

French Digital Tax Proposal Puts Tech Giants on Notice

March 6, 2019, 5:36 PM

Tech giants could have just seven months to prepare for the first payment of France’s 3 percent digital tax, which would be due in October.

The time frame for the tax’s application and first payment was set out in a bill presented to the country’s cabinet March 6 by French Finance Minister Bruno Le Maire.

Dubbed the GAFA tax—after Alphabet Inc.’s Google, Amazon Inc., Facebook Inc., and Apple Inc.—the levy would apply to companies with 750 million euros ($848 million) in worldwide digital revenue and 25 million euros of French digital sales.

The French government will tax online marketplaces, the sale of data for targeted advertising, and the sale of targeted online advertising. Activities that won’t be taxed are direct e-commerce retailing, messaging or payment apps, and online advertising that doesn’t involve user data.

After cabinet approval, the bill, including the tax, is to be presented to parliament in early April.

If lawmakers pass it, the tax would apply retroactively from Jan. 1. The first payment due would be a double payment, which the tech companies would have to make by October. In a regular financial year, the tax would be due in April and would be payable in two installments.

The tax is to be pro-rated based on the number of users companies have in France, but there is no information about how this figure would be calculated. Companies will be allowed to offset the tax against French corporation tax.

Tech Firms Prepared

The tech companies are so far showing little concern about the lead time for planning their payments.

“Facebook pays all taxes required by law in the countries in which we operate, and we will continue to comply with our obligations as defined by French and European legislation. In France, we voluntarily set up a new sales and invoicing structure in 2018,” a company spokesman said in a March 6 email.

All revenue from advertisers supported by Facebook’s teams in France are now recorded in France, helping the company comply with the new rules, the spokesman added.

Meanwhile, Google has also vowed to comply with the rules ahead of the possible payment in October.

“We always pay all of the taxes due and comply with the tax laws in every country we operate in around the world. Google pays the vast majority of its corporate income tax in the United States, and we have paid a global effective tax rate of 23% over the last ten years,” a spokesman said in a March 6 email.

Amazon declined to comment. Apple didn’t respond to requests for comment.

Cost Passed to Consumers

The brunt of the tax will likely be paid by end consumers, the Washington-based Computer and Communications Industry Association (CCIA) predicted.

“We are concerned that the French digital tax proposal would end up harming French startups, investments and increase consumers prices. France should lead efforts to achieve international tax reform—rather than taking unilateral actions that risk undermining global efforts,” the tech industry group said in a statement March 6.

Meanwhile, the European Commission called for France and other European countries pursuing unilateral taxing measures—Belgium, Spain,U.K., Italy and Austria—to focus their efforts on reaching consensus at an EU level and through the efforts of the Organization for Economic Cooperation and Development.

“These announcements do make it even more urgent for the EU to agree on a common approach, within the single market, businesses should not have to comply with a plethora of different taxes on digital services—each with its own specific scope and rules,” a spokesman for the commission said.

The French government said the tax, which it projects would raise 500 million euros for treasury coffers each year, would be an interim measure applied until a global consensus on taxing the digital economy is reached.

To contact the reporter on this story: Hamza Ali in London at hali@bloombergtax.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; Penny Sukhraj at psukhraj@bloombergtax.com