Despite retaliatory threats from the United States, a digital services tax has been approved by the French government. The US has been opposing the plan because it claims that the tax would unfairly target US tech companies.
US based largest tech companies of the world including Google and Facebook would now have to give a tax of 3 per cent on the sale of the companies generate din France. According to the French government, the tax is justified because such companies that are headquartered outside of France essentially pay no taxes to the country even though they generate revenues from France.
An inquiry into the incident – possibly resulting retaliatory tariffs, have bene ordered by the US government.
The new tax was passed in on Thursday.
According to the new tech tax rules, the taxes would be imposed on any digital company that generates revenues of more than €750m ($850m; £670m) and at least €25m would have to be generated in France. The taxes would be applied retroactively from early 2019. The French government is expecting to generate about €400m this year from the new tax.
Global tech companies operational in France and generating revenues from the country are virtually not required to pay any taxes there if they do not have any physical presence in the country according to the current laws. Such companies take advantage of the laws and declare all of their revenues and most of their profits in the countries where they are headquartered.
While the traditional businesses have pot pay a 23 per cent tax rate on their profits on the average within the EU, the European Commission estimates that, typically, a tax rate of between 8 per cent and 9 per cent is currently applicable to internet companies.
Such companies should be taxed on the basis of digital presence and not physical presence, the French government has been arguing for quite some time. Last year, after imposing an EU wide tax for on such companies failed, the plan to impose the new tax was announced by France.
The EU wide implementation of a similar rule failed last year because Ireland, the Czech Republic, Sweden and Finland raised objections while EU rules mandate that all members need to agree to such regulations and taxations.
Sales made in the country, rather than on profits, would be the basis of the new 3 per cent tax by France.
According to reports published earlier, the new tax by France would have to be coughed up by about 30 companies – most of which are US based groups including Alphabet, Apple, Facebook, Amazon and Microsoft. Other companies include the French online advertising firm Criteo, and a number of Chinese, German, Spanish and British firms.
The tax would cease to exist if a similar tax is implemented internationally, the French government said.
The tax was denounced by the US administration a day before it was passed. An investigation would “determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce”, said US trade representative Robert Lighthizer on Wednesday.
(Adapted form BBC.com)