trending Market Intelligence /marketintelligence/en/news-insights/trending/3heWWpjoVzD-Am9cEq1UgA2 content esgSubNav
In This List

Big tech fights back against French digital services tax

Podcast

Next in Tech | Episode 50: InfoSec spending up, again…

Blog

Broadcast deal market recap 2021

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Price wars in India: Disney+ Hotstar vs. Amazon Prime Video vs. Netflix


Big tech fights back against French digital services tax

Amazon.com Inc., Facebook Inc. and Alphabet Inc..'s Google LLC testified Aug. 19 against a French digital services tax. The tech giants said the country's policy to tax revenue on certain services for French users unfairly targets large U.S. tech companies and undermines plans by the Organization for Economic Cooperation and Development to develop a common approach to the tax challenges of digitalization.

The companies said at a public hearing held at the Office of the U.S. Trade Representative in Washington, D.C., that France's 3% digital services tax, or DST, could set a precedent for other countries considering similar policies, including Spain, Italy, Austria and New Zealand.

"The French DST is unreasonable, unfair and inequitable in that it is inconsistent with international tax principles, and undermines a global approach to taxation of the digitalized global economy," said Gary Sprague, a partner with Baker & McKenzie LLP, on behalf of Amazon, Facebook, Google and other companies including Twitter Inc., Airbnb Inc. and Microsoft Corp.

The companies testified as part of a USTR investigation initiated July 10. The office is using a provision from the U.S. Trade Act of 1974 to conduct its investigation. The provision authorizes the U.S. government to investigate and seek relief from trade practices deemed to be unfair at the direction of the president.

SNL Image
Source: Google

At issue is a French government proposal released in March that would levy a 3% tax on revenues generated from providing French users with certain digital services. These include online advertising and digital interfaces like e-marketplaces for goods.

The French National Assembly passed the DST bill July 4. The assembly applied it only to companies that generate total annual revenues from the covered services of at least €750 million globally and €25 million in France, according to the USTR. The tax also would be applied retroactively from Jan. 1, 2019, giving U.S. companies little time to implement new systems to calculate the tax.

The companies are fighting the tax at a time when big tech is also under scrutiny from U.S. lawmakers for a litany of issues including privacy, antitrust laws and facial-recognition technology.

Peter Hiltz, director of international tax policy and planning for Amazon, said in his testimony that the tax is "discriminatory" because its in-scope digital services were "carefully defined." The tax's revenue thresholds were set high so that the law would only apply "to a small number of almost entirely non-French companies," he said.

"When combined, the revenue thresholds and covered services bring numerous U.S., but very few French, companies within the tax's ambit," Hiltz said.

Amazon's selling partners "may be forced to choose between increasing their prices, reducing their own costs or stop selling entirely," he said.

The company has already informed partners that it will raise seller fees in France by 3% starting Oct. 1.

Nicholas Bramble, trade policy counsel for Google, said his company is concerned that other countries such as Spain, Italy and Austria will follow suit and apply similar unilateral taxes.

"These countries are watching the French experience and considering whether a unilateral approach might be easier or more advantageous than pursuing a multilateral agreement at the [Organization for Economic Cooperation and Development]," Bramble said. "Ultimately, a series of cascading unilateral measures would have dangerous repercussions for the OECD's multilateral process and for a wide range of U.S. export sectors."

Alan Lee, Facebook's head of global tax policy, said the French DST presents issues as Facebook's revenue is generated directly from advertisers, not users.

He believes that the tax will "require additional time and resources to capture this data and maintain it for these new tax and audit purposes."

"Without further guidance from the French authorities, we estimate additional tax, compliance, audit, engineering, and maintenance costs," he said.