France Tech Tax: New Levy on Tech Giants Begins

France is proceeding with its strategy to levy a tax on major technology corporations. Notifications have been issued to these large tech firms by the government, as detailed in reports from the Financial Times, Reuters, and AFP. Potential retaliatory tariffs on products originating from France within the United States are a possibility.

Over the last few years, France’s Minister of the Economy, Bruno Le Maire, has been a strong advocate for tax adjustments. Numerous economic ministers throughout Europe share the belief that technology companies are not being adequately taxed. These companies often earn income within a specific nation but declare their taxes in a different jurisdiction. They utilize nations with reduced corporate tax rates to maximize profitability.

Initially, Le Maire proposed a pan-European tax on substantial technology companies, calculated on their revenue generated locally. However, he was unable to secure consensus from other European nations—a unanimous decision from all European Union members is necessary for European tax policy changes.

The French government decided not to postpone action while awaiting agreement from other European countries and began developing its own national tax. The criteria for this tax are as follows:

• Global revenue must exceed €750 million, with at least €25 million originating from France.
• And the company must operate either a marketplace platform (such as Amazon, Uber, or Airbnb) or an advertising-based business (like Facebook, Google, or Criteo).

Companies meeting both of these conditions will be required to pay a tax equivalent to 3% of their revenue earned within France.

Concurrently, the Organisation for Economic Co-operation and Development (OECD) has been working towards a standardized, global framework for the appropriate taxation of technology companies. However, OECD members have not yet been able to reach a definitive agreement.

France and the United States have engaged in intermittent discussions regarding this technology tax over the past several years. In August 2019, then-U.S. President Donald Trump and French President Emmanuel Macron reached a preliminary understanding, with the French government agreeing to suspend the French tax once the OECD established a suitable method for taxing technology companies in the countries where they conduct business.

In December 2019, the U.S. threatened to impose 100% tariffs on French wine, cheese, and handbags, citing dissatisfaction with the previous agreement. In January 2020, both parties consented to a temporary pause to observe the progress of the OECD framework.

We have now arrived at this point. The French government asserts that negotiations within the OECD have been unsuccessful, therefore initiating the collection of the French digital tax. The response from the U.S. will be closely watched during the transition between the Trump and Biden administrations.