France has approved a 3 percent Digital Services Tax (DST) on revenues that large tech companies, particularly those in the digital advertising and e-commerce industries, earn from providing digital services to French customers.
The bill addresses long-held frustrations in the use of complex financial structures or subsidiaries in low-tax areas that allow companies to avoid paying taxes in France and other European countries
The French senate approved the new digital services tax on Thursday, a day after US President Trump ordered an investigation into France’s planned digital tax.
The new tax affects digital companies with revenue of over €750m ($850 million), of which at least €25m is generated in France. About 30 companies will be affected by the new tax – most of which are US firms.
The tax amounts to a 3% annual levy on French revenues of digital companies with yearly global sales worth more than 750 million euros and French revenue exceeding 25 million euros. The tax primarily targets those that use consumer data to sell online advertising.
France’s Finance Minister Bruno Le Maire said,
“Each of us is seeing the emergence of economic giants with monopolistic attributes and who not only want to control a maximum amount of data and make money with this data but also go further than that by, in the absence of rules, escaping taxes and putting into place instruments that could, tomorrow, become a sovereign currency,”
According to France’s Finance Minister Bruno Le Maire, the tax would raise up to €500 million ($565 million) per year.
The Trump administration had warned that France’s digital tax plan “unfairly targets American companies.”
U.S. Trade Representative Robert Lighthizer said on Wednesday that the US will investigate whether France’s digital tax “is discriminatory or unreasonable and burdens or restricts United States commerce.”
Amazon applauded the Trump administration’s decision. The tech giant said in a statement:
“We applaud the Trump Administration for taking decisive action against France and for signaling to all of America’s trading partners that the U.S. government will not acquiesce to tax and trade policies that discriminate against American businesses.”
Le Maire said in a statement:
“France is sovereign, and France decides its own tax rules. And this will continue to be the case,”
The DST comes as France is working within multilateral organisations to overhaul the corporate taxation system for the digital age. France was one of the most vocal proponents of closing tax loopholes for multinationals in discussions among G20 finance ministers last month. The ministers are to produce a consensus-based solution with a final report by 2020.