France demands digital services tax from Big Tech on revenue generated in 2020

The big picture: The OECD has been working for years on a way to properly tax tech companies using a standardized set of rules that would apply across the globe. However, slow progress in the negotiations is leading countries like France towards unilaterally implementing their own digital service tax, which has all the markings of a trade war written on it.

Several countries in Europe including Italy, Poland, Turkey, Austria, the UK, and France have implemented or are looking to implement a digital services tax that will be levied upon tech giants that operate a marketplace or an advertising business that generates more than €750 million in revenue globally and €25 million locally during a fiscal year.

This is mostly a symptom of the OECD’s struggle to get 137 countries to agree on new international tax rules that would prevent tax avoidance, but it’s becoming a serious issue that could complicate things for big companies and even send them down a path where they hike their developer, seller, and advertising fees.

In the case of Apple, Amazon, and Google, that’s already happened — and that means these companies are now passing down those costs to users of their platforms.

Of the aforementioned countries, France in particular has been eager to introduce a digital services tax, which has had the French and US governments sparring over who wields the bigger tax stick.

The Trump Administration last year vowed to impose a 100 percent tariff on $2.4 billion worth of French products, but so far that hasn’t happened.

Recently, France started notifying tech giants including Google, Apple, Facebook, and Amazon that it will start imposing a 3 percent digital services tax in 2021. Specifically, officials have told these companies that they need to pay the tax owed on their 2020 revenue, a prospect that will no doubt come as a shock.

Back in January, the French government agreed to suspend the collection of the new tax to allow the OECD ample time to get a preliminary draft for the new international tax legislation. The US, however, withdrew from OECD talks in June, which might have sent the wrong message in the middle of a pandemic that has put enormous stress on the world’s economies.

This has coincided with stock upswings for Big Tech that have resulted in record valuations and tech billionaires getting significantly richer. A spokesperson for France’s Finance Ministry noted the country is still looking forward to “an international solution so that digital companies pay their fair share of tax just like other companies,” but that it doesn’t see how it could materialize in the near future.

The spokesperson told the Financial Times that “we can’t wait any longer and tech companies are the big winners from the pandemic. Their turnover is booming and they did not pay fair taxes even before the pandemic.”

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