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Battle Over Digital Tax in France Rages On

Battle Over Digital Tax in France Rages On

Taxing the digital economy will be one of the topics to be discussed at #TLTaxCon19 in Barcelona this coming October. Make sure to join the discussion by grabbing your tickets HERE. Hope you can join us!

Following France’s ratification of a digital tax on the revenues of large technology companies operating in the country, Amazon has vowed to pass on this added cost to French consumers.

This special tax, which will be retroactively implemented from the beginning of 2019, will target roughly 30 large companies with global revenues surpassing 750 million Euros and at least 25 million Euros in France alone and impact their online sales for third-party retailers, digital advertising, and the sale of private data.

As reported by RFI, starting in October, “online retailer Amazon will increase the commission it charges the French businesses that use its Marketplace platform for finding customers, by three percent, rather than taking the hit itself.”

A spokesperson for Amazon told AFP, “As we operate in the very competitive and low-margin retailing sector, and invest massively in creating new tools and services for our clients and vendor partners, we cannot withstand an additional tax.”

“This could put smaller French firms at a competitive disadvantage to their peers in other countries, and like many others, we have alerted the authorities.”

The French Ministry of Economy reiterated that the levy is “above all a question of fiscal justice.”

“Amazon has chosen to pass on the costs of this tax to the small and medium-sized enterprises that use its services. There is nothing obliging them to do so,” the ministry added.

“This principle isn’t enshrined anywhere in the law creating the tax.”

French company Rakuten France, a third-party retailer, announced it wouldn't follow Amazon’s lead in 2019 and will not have their customers cover the costs of the tax.

However, Rakuten’s CEO Fabien Versavau said, “We’ll wait to see what impact it has on the company” before deciding how to proceed in 2020.

Association of Large French Companies (AFEP) Responds to US Digital Tax Probe

Association of Large French Companies (AFEP) Responds to US Digital Tax Probe

In response to the French digital tax, the Trump Administration launched an investigation under Section 301 of the Trade Act to gauge whether or not this levy is discriminatory towards American multinational companies.

As a result of this announcement, France’s Association of Large French Companies (AFEP) urged the United States to hold off on it, wait for a global solution to the digital tax conundrum or challenge it via diplomatic or WTO channels.

More specifically, AFEP stated in a press release that the French government intends on repealing the digital tax “in case G20/OECD discussions result in a satisfactory outcome in terms of new rules for determining the appropriate nexus for corporate taxes, and, in particular, for the taxation of digital economy companies.”

Furthermore, AFEP urged “the USTR to consider G20/OECD negotiating process as a key element for the sake of its investigation on French DST under Section 301 procedure and, notably, to halt any concrete determination on trade distortive effects and potential countervailing measures if there are clear indication that these negotiations are about to be successfully concluded.”

AFEP added, “A political agreement in the context of the G7 Summit in Biarritz at the end of August 2019 would pave the way for an overall G20 agreement by the end of 2020, which coincides with the maximum duration of the amicable consultation period under Section 301 procedure.”

Finally, the organization encouraged the Trump administration “to engage consultations with the French government and/or the EU on a possible bilateral compromise on the taxation of digital activities before moving to further procedural steps,” and, if necessary, consult “the WTO dispute settlement system which is design to deal with such trade litigations.”

What are your thoughts on this battle over digital taxes between France, GAFA and the US? How will it end?