France Goes Retro with Proposed Unilateral Digital Tax

Not content to wait for the OECD to complete its multilateral digital tax reform endeavor, France introduced a new digital services tax of 3 percent that will apply to companies with more than €750 million (or roughly $850 million) in annual revenue, at least €25 million of which is generated in France.

The French government also appears un peu impatient in terms of when it intends to start collecting the tax: retroactively, to the beginning of this year. Although the proposed measure will be considered by the government in April, it appears highly likely to pass given the party that introduced it enjoys a healthy majority in parliament.

While France’s Finance Minister Bruno Le Maire has used choice words to describe the rationale for the tax on large, primarily U.S.-based technology companies – he recently told The Wall Street Journal that “these giants use your personal data and make significant profit from it, without paying their fair share of tax” – he also vowed that France would eliminate its tax once the OECD finalizes its similar digital tax, an effort scheduled to conclude next year. The European Union (EU) also attempted to reach agreement among its member countries, but that effort appears to have stalled out, primarily because EU tax proposals require unanimous support, and that has not been forthcoming. Finally, the EU abandoned their plans for a bloc-wide temporary digital tax on large multinational firms in favor of the OECD’s proposal to a permanent solution by establishing minimum international standards. However, ministers stated the EU may reconsider its earlier proposal, should the OECD fail to do so by the end of next year.

Many business and technology-industry groups, as well as individual companies have expressed a strong preference for a multilateral approach to tax reform and the introduction of new digital services tax rules. The Computer & Communications Industry Association, for example, voiced concerns – supported by research it commissioned – that the vast majority of France’s new digital services tax will ultimately hit the pocketbooks of French companies and consumers, as technology companies affected by the tax will raise their prices in response. The founder of UK-based business group Tech London Advocates told The Telegraph that France’s proposal was “misguided” and asserted that the measure might “signal the start of the end for the French digital revolution.”

U.S. government officials are also wary. Chip Harter, deputy assistant secretary for international tax affairs at the Treasury Department’s Office of Tax Policy, this week told Bloomberg Tax that “various parts of our government are studying whether the discriminatory impact [of France’s proposal] would give us rights under [World Trade Organization] trade agreements.”

France is not alone in going its own way on digital taxation prior to the OECD’s finalization of its plan. The UK’s digital tax rule is set to take effect next year, and Germany is currently considering a similar move. Aside from the UK and France, Austria, Spain and Italy have also proposed similar unilateral measures. We will keep you appraised of updates as we monitor for additional countries to pass new legislation on digital services tax.

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George L. Salis, Principal Economist and Tax Policy Advisor at Vertex Inc.  Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

George L. Salis

Chief Economist and Senior Tax Policy Director

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George L. Salis is Chief Economist and Senior Tax Policy Director. He is an economist, lawyer, and tax professional with 29+ years’ experience in international taxation and trade compliance, tax planning and controversy, fiscal regulation, and tax economics consulting. He is responsible for analysis of economic, fiscal, legal, trade, and development issues in countries, as well as tracking and analyzing the rapid change in tax policies and regulations, and inter-governmental organizations, and tax administrations around the world.

George is the recipient of the Advanced Certificate in EU Law from the Academy of European Law, European University Institute in Florence, and the Executive Certificate in Economic Development from the Harvard Kennedy School of Government.

George received his BSc in economics and political science, an LLB (Honours), an MA in legal and ethical studies, and an LLM (Honours) in international tax law. He also holds the PhD in international law and economic policy, and the SJD in Taxation from The University of Florida, Levin College of Law. George is a Certified Business Economist (CBE- NABE).

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