In March 2018, at the request of France, the European Commission put forward two proposals for a reform of corporate tax rules and a tax on technology giants. Their aim? To tweak tax laws so any company with significant digital business within the EU would have to pay tax there, even if it had no physical presence inside Europe. An interim tax would have applied to technology giants’ revenues from activities including targeted advertising and data exploitation, until full implementation of the reform was achieved.
But after almost one year of equivocation, the proposals have not moved forward, due to the opposition of some EU member states. Now France and its economy minister, Bruno Le Maire, have decided that they will go it alone, and impose a tax on digital giants at the national level.
The French tax, which is in the works, will be presented to the government in February, and then move to the National Assembly to be adopted as fast as possible. The government wants to make it retroactive, so that it applies starting from the January 1, 2019. The levy will target companies whose revenues exceed €750 million globally and €25m in France – extracting up to 5 per cent of the companies’ French revenues.
France is not the only country which has started working on a national tax on tech giants. The UK, Italy and Spain have all announced similar measures in the last months. Many non-European countries have also shown interest in addressing the tax issue, and the Organisation for Economic Co-operation and Development (OECD), an organisation including 36 developed countries, has been working on fiscal policy solutions to tax virtual economic activity worldwide.
For years, the French economy minister Bruno Le Maire enjoined members of the European Union to stop resorting to “empty words” and excuses, and finally implement a Europe-wide tax on tech giants. In October 2018, in a EU economic committee, he pleaded for unified fiscal justice and warned member states against a “shameful failure” if they were not able to agree on a shared tax.
“Bruno Le Maire has been fighting for this policy for a very long time,” says Delphine Siquier-Delot, senior analyst on fiscal policies at the Friendland Institute. “He’s had very radical words on the necessity to find a solution.”
Taxing digital giants had been one of Emmanuel Macron’s campaign promises in 2017, and Le Maire promptly took up the matter in the summer of 2017. The minister insisted that he was only ready to tolerate “reasonable delays” from the European Union.
But unified European action, which would have required every EU member state to back the proposals, was always bound to be tough. Ireland, where several several technology giants are headquartered, would lose a hefty chunk of their taxes under the new plans; Sweden, Denmark and Finland also objected to the measures, saying they should be adopted only after the implementation of the OECD's global plan. Even Germany, France's closest ally went from being initially supportive of the measures to lukewarm.
“The German government is very worried about its relations with the American government [and fears retaliation] on its automotive industry – given that the US supports its digital companies, the GAFA [Google, Apple, Facebook, Amazon],” says Rémi Bourgeot, an economist and fellow at French think-tank IRIS, the French Institute for International and Strategic Affairs. “The German government didn’t want to worsen things at the moment by following the French initiative.”
In December 2018, France had to review its ambitions down. Both French and German economy ministers agreed to convince their European Union counterparts to adopt the Digital Services Tax, a 3 per cent tax on technology giants’ advertising sales only.
“Le Maire had said the deadline to find a European agreement was the end of 2018, so this revealed a clear impasse in European negotiations,” explains Siquier-Delot.
Bourgeot says the situation is “embarrassing” for the French government, whose ambitious European plans are crumbling just a few months before the European parliamentary elections. “All the European reforms, the common budget...Macron’s agenda really has been going off the rails,” he says.
Faced with unnerving defeats at the European level, Macron’s government has also been struggling with challenges at home. Since November 2018, the gilets jaunes (yellow vest) movement has highlighted massive popular discontent around different issues, including inequality. A survey in January 2019 found that almost eight in ten French people thought Emmanuel Macron should change his economic and social politics.
The government first announced it would tax digital giants in France in December, and it has been sharing details about the implementation of the expected law since then.
“This was more of a symbolical step to say ‘unlike others, we are working – especially given the gilets jaunes context – on the issue of the limited taxation of digital giants which is unacceptable, and so we cannot remain passive in such a context, and we cannot wait to see whether European discussions succeed or not’,” says Siquier-Delot.
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France expects to gain €500m a year from the new tax. This money, according to French Prime Minister Édouard Philippe, could help fund measures Macron promised in December in response to the gilets jaunes unrest. Accused of being the “president of the rich,” Macron launched a new programme of economic and social measures, including a rise in minimum wage, tax-free bonuses, tax-free overtime work, and the cancellation of some taxes. Those measures will add up to €10 billion more for the 2019 budget.
A spokesperson for Facebook France says that the company is waiting for more details about the tax. The French branches of Amazon, Google, and Apple did not respond to request for comments.
Experts worry that European and French technology companies could suffer from the tax, which will be applied to revenues – and not profits, as is usually the case. “We need to closely study the impact on European companies. Are we not going to prevent the emergence of big European and French technology companies with this type of tax?” says Bourgeot.
They also question the fact the French government would be able to get 500 million from the tax, since many companies could simply move their fiscal establishment to another European country. “It’s clearly more of a political symbol than a real technical fiscal measure which will solve economic problems,” says Siquier-Delot.
Minister Le Maire is still intent on finding a Europe-wide solution, and in a recent interview with the French newspaper Le Journal du Dimanche, said that he expected a European agreement in March. Sources at the economy ministry, speaking under condition of anonymity, say that Le Maire and his German counterpart were working hard on convincing Ireland, Sweden, Finland and Denmark, which remain opposed to the tax. Le Maire will be traveling to Sweden this week and Finland shortly after.
“We can’t allow ourselves to wait until everyone decides to move forward. We need to find temporary solutions at the European and national levels,” the sources at the ministry add.
They added that the issue of corporate tax reform – especially for tech giants – would be a priority not just at the European level, but also at the international level during the G7, which France is leading this year as well as at during the OECD work.
“It’s because we’ve moved forward on this issue at the national level and put pressure at the European level that it’s starting to move at the international level,” they say.
This article was originally published by WIRED UK
