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France’s “tech tax” upsets the US

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07/11/2019 | 11:01am EDT

Google, Apple, Facebook, Amazon or Microsoft will now be subject to a tax in France. A move that is designed to counted the optimization mechanisms used by these multinationals. But Donald Trump isn’t happy about it.

The French government has approved a 3% tax on the sales generated in France from the global tech companies. This means that taxation will be based on their total sales in France, rather than the profits they make. In response, Washington said it would study the French bill to determine whether it is "discriminatory or unreasonable and hinders or restricts U.S. trade.”

This is the first step in a process that generally leads to the imposition of unilateral sanctions by Washington.

In response, the French Minister of Economy Bruno Le Maire said the tax should be "an incentive for [the Americans] to further accelerate work on an international OECD-wide digital tax solution".

650 millions euros for the French State

The new tax advocated by France will apply to companies that are mainly American, but also to some Chinese, German, Spanish and British companies. It will apply to tech companies with global sales of over €750 million, and which make more than €25 million a year in France. The idea is to tax them on 3% of the turnover generated in France, in particular on targeted online advertising, the sale of data for advertising purposes and the linking of Internet users by platforms.

It should apply to about thirty groups, and is expected to bring in 400 million euros in 2019 and 650 million euros in 2020.

The tax is largely based on a European project that has not been successful due to the reluctance of Ireland, Sweden, Denmark and Finland.

The French government argues that tech giants pay little or no tax in France, but according to the Wall Street Journal, the U.S. wants to avoid a patchwork of unilateral taxes and opposes measures that target digital companies in particular.

Amazon said it applauded the Trump administration for “taking decisive action against France and for signaling to all of America’s trading partners that the U.S. government will not acquiesce to tax and trade policies that discriminate against American businesses.”

However, Amazon and other global tech companies have been accused of using loops to avoid paying taxes. Often, tech giants have offices in countries like Ireland or Luxembourg, where there are very low tax rates, as per the BBC's infographic below. This often means that these companies end up paying little in countries such as France or the UK, despite the sheer size of their business.

There was an outcry in the UK in 2017, when it appeared that singer Ed Sheeran paid more taxes than Amazon. While Sheeran paid about $7 million in taxes, Amazon’s tax bill was in the region of… $2 million.

Romain Fournier
© MarketScreener.com 2019
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