France's Senate has greenlit a digital services tax, despite an earlier warning of retaliation by the U.S., as the country believes that the tax targets American technology companies unfairly. Under the new bill, internet companies will be required to pay 3-percent tax on revenue generated in France.
The tax will be applicable to digital companies that rake in an annual global revenue of more than $850 million, with at least $28 million of the total sales coming from France. If the French President Emmanuel Macron signs the bill into law, it can go into effect this year only and is expected to generate around $450 million.
It's apparent why the U.S. government is against the tax. Out of the 30 companies that will be affected, a lot are U.S.-based, including Amazon, Google's parent company Alphabet, Apple, Facebook, and Microsoft.
That is not to say that companies from other countries will not be impacted, as the list also contains the names of British, Chinese, German, Spanish, as well as French firms.
The French government says that since most tech firms are headquartered outside of France, they do not pay as much tax as they should be paying. According to estimates from the European Commission, internet companies only pay a tax of 8-percent to 9-percent on their profits, while traditional businesses typically pay more than double that rate.
France says that taxes should be levied according to digital presence too and even the UK believes that internet companies should be regulated more tightly. In fact, the country announced its own 2-percent digital sales tax last year, which companies generating global revenue of more than $627 million will be required to pay.
Other countries such as Ireland, Sweden, the Czech Republic, and Finland are not as keen on a digital tax. Otherwise, France and the UK would have pushed for an EU wide levy. A 3-percent tax that France is proposing can generate around $5.6 billion in tax revenue every year if it is imposed across the EU.
The U.S. has opened a Section 301 investigation into the matter, as a result of which France can face retaliatory tariffs. The U.S. Trade Representative Robert Lighthizer says that the tax is discriminatory and restricts commerce.
He further added that the company will continue to support the Organization for Economic Development (OECD)'s efforts for drafting a multilateral agreement on digital taxes. However, the OECD isn't expected to finalize anything before next year, which is perhaps why France decided to march ahead with its own taxes.
France's Finance Minister Bruno Le Maire has said that the country is sovereign and will decide its own tax rules. He seems undeterred by threats and says that allies should instead solve their problems through negotiations. If something similar is agreed upon internationally, France says it will end its tax.
As for the tech companies that will be affected, they continue to say that they are already complying with all tax laws. Amazon has called the tax discriminatory and believes that it can harm both American and French consumers.