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France will implement its 3% digital tax in absence of global tax treaty

France, phones, Mona Lisa

France will impose a 3% digital tax, colloquially known as “Les GAFA” (after Google, Apple, Facebook, Amazon), on digital companies that have a revenue of more than €25 million in France, and more than €750 million worldwide irrespective of whether or not an international deal on such a levy progressed, French Finance Minister Bruno Le Maire said, per a Reuters report.

This is similar to the 2% equalisation levy that the Indian government brought into effect on April 1, 2020, which is imposed on the sale of goods or services by a non-resident e-commerce operator in India. The Indian government had imposed a 6% equalisation levy on digital advertising services offered by non-resident providers in 2016.

When this tax was approved in July 2019 by the French Senate, this was meant to be a temporary solution, a placeholder until the Organisation for Economic Cooperation and Development (OECD) reached an international agreement to overhaul its decades-old cross-border tax rules. Paris had reportedly offered to suspend its digital tax until the end of 2020 as an international deal was negotiated but the fallout from the COVID-19 pandemic upended those plans. OECD has moved the deadline for iron out the agreement from July 2020 to October 2020 because of the pandemic.

India has, for quite some time now, seeking to tax digital companies on the basis of their economic presence. To that end, Finance Minister Nirmala Sitharaman had called for adoption of the “significant economic presence” concept to tax global digital companies at the G20 Finance Ministers and Central Bank Governors’ Meeting in June 2019.

France cracks down on digital companies

  • On May 13, the French National Assembly passed a law that makes it mandatory for social media platforms to take down hateful content from their platforms within 24 hours, and in some cases within 1 hour, or face a fine of up to €1.25 million or up to 4% of their global turnover. This law was first approved as a bill in July 2019.
  • On April 9, the French competition authority ruled that Google would have to negotiate with news publishers to remunerate them for article snippets the search giant shows in search results. The ruling was based on a suit filed by French publishers after the country’s implementation of the EU’s Copyright Directive, which specifically targeted aggregators like Google for profiting from news companies without remunerating them.

Other European countries implement, approve digital tax

  • The United Kingdom’s 2% levy on digital business, which is expected to collect £2 billion pounds in revenue, has moved to the committee stage which must be completed before June 25.
  • Czech Republic, which had approved a 7% digital tax on Big Tech companies with global turnover of €750 million in November 2019, is considering reducing the rate to 5%, Bloomberg Tax and Reuters reported. On May 14, the parliament’s budgetary committee voted to delay the discussion until a June 10 meeting. In January 2020, the American embassy in Prague had threatened counter-measures if the country went ahead with this digital tax.
  • Turkey imposed a 7.5% digital service tax that came into effect on March 1, 2020. This is the highest digital tax rate in Europe.
  • Italy imposed a 3% tax on digital advertising, part of e-commerce, and transmission of inferred user data. It came into effect in January 2020.
  • Austria imposed a 5% digital services tax on online advertising what came into effect in January 2020.

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