France’s new digital tax explained

The French Senate has approved a controversial new tax on international tech giants, despite threats of retaliation from the US and concern it could open a new front in a transatlantic trade war.

The so-called ‘digital tax’ will impose a 3% levy on sales generated domestically by multinational technology firms worth more than €750m - of which at least €25m has to be generated in France.

It will be retroactively applied from early 2019, and is expected to raise about €400m this year.

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The BBC estimates the new tax will affect about 30 companies – “mostly US groups such as Alphabet, Apple, Facebook, Amazon and Microsoft” although Chinese, German, Spanish and British firms are also affected, as well as the French online advertising firm Criteo.

It comes after EU efforts to impose a similar tax were rebuffed by the likes of Ireland, the Czech Republic, Sweden and Finland.

France has long argued that taxes should be based on digital, not just physical presence. The European Commission has estimated that multinational digital companies with investments in the EU are on average taxed at a rate 14% below that of other firms.

Reuters reports that “political pressure to respond has been growing as local retailers in high streets and online have been disadvantaged; French President Emmanuel Macron has said that taxing big tech more heavily is an issue of social justice”.

The Trump administration has denounced the new law, which it says unfairly targets US firms.

On Wednesday, US trade representative Robert Lighthizer said an investigation would “determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce”.

And in a rare show of unity with the Trump administration, online retailer Amazon, whose founder Jeff Bezos has been the repeated subject of attack from the president, said in a statement reported by CNBC:

“We applaud the Trump Administration for taking decisive action against France and for signalling to all of America’s trading partners that the US government will not acquiesce to tax and trade policies that discriminate against American businesses.”

“The choice of weapon is telling,” says Lionel Laurent in Bloomberg. “Trump has used this type of inquiry against China to attack it with unilateral tariffs. This isn’t about patiently waiting for a ruling from the WTO, this is the stuff of trade wars.”

Reuters says that while “the digital tax spat is separate from the transatlantic trade row, [it] could be used by Trump to try to obtain EU concessions on the trade front”.

“What happens next is a big test of whether Europe will stand by France despite the obvious divide and rule tactics from the White House,” says Laurent.

France will be hoping that other countries follow it's lead, providing safety in numbers, writes BBC North America technology report Dave Lee. Or that its move “gives added energy to calls for a multilateral agreement on how digital firms should be taxed globally, putting an end to the squirreling-away of vast sums of money made by internet giants”.