Emmanuel Macron and his Minister of the Economy and Finance have initiated a broad tax offensive against on-line giants, Google, Apple, Facebook and Amazon, the so called GAFA.
Based on recent statements by Bruno Le Maire, the position of the French Government is particularly aggressive towards these four corporations.
He declared: “international taxation is based on the principle that a company pays its taxes in the country where it is physically implanted. This fiscal gap has a massive cost for our public finances. It represents several billion euros of tax losses for France each year.”
France has also understood that isolated action makes no sense and that action at European level is the only effective way to stop the tax exemption of digital giants.
The companies concerned hit back strongly on social media
The physical relocation of these companies is relatively straightforward since their turnover is data-driven and generated online, without physical establishment, and so is hardly, if at all, subject to corporate tax.
For these reasons, at a meeting of EU Finance Ministers France became the catalyst for a plan to make the GAFA pay a specific tax at European level.
Germany, Italy and Spain also supported a proposal for an equalisation tax on turnover.
According to Le Maire, this tax would be based on turnover where it is generated, at a rate set to be more or less equivalent to what the corporate tax would have generated if it had been imposed.
France and its European partners were successful in recruiting some other member states for the plan: Austria, Bulgaria, Germany, Greece, Italy, Portugal, Romania, Slovenia, Spain and France signed a non-binding agreement.
The French Government also claims ten other informal supporters. Non-supporters include Luxembourg, Ireland, Sweden and Cyprus, as well as the UK, whose view may not carry weight given its impending EU departure. Le Maire made clear that France will put this proposal on the agenda of the OECD and the G20. France is setting the stage for the next 2 years.
The French initiative is reminiscent of the Financial Transaction Tax (FTT). When first proposed, the FTT idea was strongly rejected by some member states, but a group of its supporters continued to work on it under the so-called enhanced cooperation procedure.
Despite several years of discussion, there has been no agreement on an FTT. This state of paralysis might lead us to believe that the French GAFA proposal might already be a lost battle.
Nonetheless, the Tallinn meeting is a positive start for Le Maire and suggests a new diplomatic approach from France. It is pushing hard for as much support as possible before a summit of EU leaders at the end of September focused on digital issues.
The companies concerned hit back strongly on social media. Their reaction clearly shows that the position taken by France and its European partners is being taken seriously by the GAFA.
The French initiative has achieved some success with the European Commission because the European executive itself subsequently announced its aim to present a legislative proposal by spring 2018 on this subject. Any such proposal would require agreement by the all Member States.
“The ideal would be to have a global approach, which is why we are also cooperating with the OECD and the G20,” said European Commission Vice-President Valdis Dombrovskis.
Indeed, the Commission has considered its immediate options while waiting for international agreement at OECD Level, such as equalisation tax on turnover of digitalised companies, withholding tax on digital transactions, or levy on revenues generated from the provision of digital services.
France is playing a clever hand by taking advantage of the Commission’s frustration at the lack of progress on the proposed EU directive for a Common Consolidated Corporate Tax Base (CCCTB), which is aimed at putting in place an effective solution to fight tax avoidance for all companies, not just the tech giants.
It is a first success for Macron and Le Maire, but one victory does not necessarily win the war. The ongoing uncertainty of the Brexit negotiations will play a significant role in determining the overall outcome.
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