France kicks off debate on taxing tech giants
US President Donald Trump never really got along with his French counterpart Emmanuel Macron and the unease between the two leaders is readily visible on Trump’s face or in his body language every time the two meet. Now, Macron has given Trump another reason to not like him.
Last week, despite threats by the US administration, the French Senate cleared a new tax on the sales within France generated by companies that are headquartered elsewhere. The tax of 3 percent on total sales will be imposed retrospectively from Jan. 1 on companies with a minimum global turnover of €750 million ($840 million) that generate at least €25 million from sales in France this year.
For now, the tax concerns a total of 28 companies, many of them tech giants from the US, such as Alphabet, Facebook, Uber and Amazon, but there are also Chinese and some European companies, including a French one.
The US has threatened to launch an investigation into the measure, saying that it unfairly targets US businesses and is protectionist — a charge vehemently denied by Paris, which says that the time has come for the international community to modify tax regimes to take into account the evolution of the global economy and the emergence of technology companies that do not need a physical presence and yet conduct business all around the globe.
Indeed, France is not alone in this thinking. The EU has long accused the new tech companies, most of them based in Silicon Valley, of tax evasion across Europe, even though they raise a significant proportion of their global sales on the continent. Led by France and Germany, the EU last year began pushing for new norms of EU-wide taxes to target these companies. However, the measure stalled as some member states, themselves low or no-tax havens, felt their own interests threatened by the move.
Nevertheless, the French argument does carry weight. The technology companies have benefited for long — too long, one could argue — riding on the back of nearly no taxes in several key markets. They have also bypassed key regulations that add to the costs of doing business, such as taxi licenses that Uber or its drivers do not need to buy. A study by the European Commission says that, on average, the tech firms pay as little as 8 percent tax on their total sales within the EU, while the standard bricks and mortar companies pay as much as 25 percent.
The US has threatened to launch an investigation into the measure, saying that it unfairly targets US businesses and is protectionist.
Ranvir S. Nayar
This lopsided tax rate and playing with regulations perhaps could have been justified about two decades ago, when these tech firms were nascent. Today, however, they account for a sizeable chunk of the global economy, have turned their founders into multibillionaires and their shareholders have also made a killing on their investments.
The only ones not to have reaped any financial benefits from this wealth are perhaps governments and, more broadly, society. This may indeed be the time for a review of the global taxation system and the special treatment meted out to the tech giants.
In many ways, the new French tax could be viewed as another attempt by the government in Paris to push for a global discussion on this key issue. Indeed, as the finance ministers of the G7 group of developed economies gather in Chantilly this week for their annual meet, France, the host nation, has very aptly kept this item right on top of the agenda. It has said that it will withdraw its tax the moment an EU-wide measure or another global tax that would be seen as fair to both the technology and innovation companies as well as the “old economy” comes into effect.
Getting into a very high-profile and public spat over taxing tech at a time when France is trying to position itself as the innovation capital of the EU, if not the world, is a very risky strategy. Yet the French government believes that the two are not contradictory. It says it has and will continue to make the business environment more innovation and technology-friendly and will provide all sorts of incentives and assistance to startups and entrepreneurs. Paris also points out the duty of the “mature” technology firms such as Alphabet and Facebook to turn in a part of their profits to every country where they make money.
The G7 meeting is extremely unlikely to be the place where the dispute with the US is resolved. But France wants to put the issue right in the eyes of the global community in a manner that means few will be able to ignore what is a burning issue not just in Paris, but also in the US. In America, the tech firms could soon become easy targets, just like the banks have been in the last decade, when they were seen as creaming off the profits from society without any payback. Though Trump may launch countermeasures to attack French products, the tech companies are unlikely to be able to escape the tax net much longer.
It may be worthwhile for the tech giants themselves to mend their ways and begin paying at least nominal taxes in countries where they do sizeable business. This would definitely ease the pressure and could, in a way, head off other countries adopting French-style taxes, or else they may find themselves at the receiving end of rather stiff, one-sided measures not too far down the road.
- Ranvir S. Nayar is the editor of Media India Group, a global platform based in Europe and India that encompasses publishing, communication and consultation services