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France to levy digital service tax on tech giants: Report

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The French government is planning to re-introduce a digital service tax (DST) on big tech companies from this year onward, reported Reuters. Though the policy to impose a 3% tax on revenue from digital services was introduced by the French government last year, tax collections were suspended as the Organization for Economic Cooperation and Development (OECD) had begun negotiating an overhaul of the global tax system. However, in a conversation with journalists on Wednesday, French Finance Minister Bruno Le Maire said, “Never has a digital tax been more legitimate and more necessary […] In any case, France will apply as it has always indicated a tax on digital giants in 2020 either in an international form if there is a deal or in a national form if there is no deal.”

The French DST would apply to digital companies with global revenues of €750 million ($880 mllion) and French sales of at least €25 million. The proposed tax will be levied on two types of activities: the first, on companies providing intermediary services or digital interfaces enabling users to enter into contacts and to interact with others and the second, on companies that provide advertising services based on user data.

Facebook and Amazon have already received communication from the French authorities demanding payment of the tax for 2020, the Financial Times reported. This tax is expected to aggravate the tariff war between the United States and Europe. The U.S. Trade Representative’s office (USTR) is expected to slap a 25% retaliatory tariff on $1.3 billion worth of French handbags and makeup, the FT has reported. Despite authorities in the United States and France agreeing to suspend the imposition of this tax back in June, the US pulled out of the OECD talks the same month.

Given that there was no headway being made by the OECD on an international agreement on new DST rules, the French government has decided to go ahead and charge the big tech companies, La Maire told reporters. “We won’t have a [OECD] deal in January, February, March or April,” Le Maire said. “Do we accept that the big winners of the economic crisis, the digital giants, continue to be taxed less than other companies? My response: no. Three times no,” he said, according to Politico. However, La Maire also said that he expects the OECD group to come out with an agreement on new global tax policies, even as the French government pushes for a European Union plan to reform the digital tax regime by early 2021, if the OECD talks fail.

India’s digital taxation policy

Back in 2016, the Indian government introduced a 6% equalisation levy payable by Indian residents on online advertisement services purchased from non-resident companies. This tax was extended to include a 2% tax on non-resident e-commerce operators selling goods and services in India from April 1, 2020 onward. However, several lobby groups have urged the government to delay expansion of the equalisation levy. The extended policy covers e-commerce activities that involve the facilitation of purchases made in the territory of India or use of IP addresses located in India; sale of advertisements to a non-resident of India that target Indian residents or IP addresses within India; and any sale of data to a non-resident of India that has been collected from an Indian resident or IP addresses within India.

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In retaliation to a growing number of DST policies across the world on US-based tech firms, in June 2020 the USTR office began investigations into such policies stating that they were discriminating against U.S. companies, that they were retroactive and possibly unreasonable. The investigation is looking into policies introduced in Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom. In response, India told the USTR that its equalisation levy policy is “entirely consistent with India’s commitments under the WTO and international taxation agreements.”

According to a Bloomberg report, the USTR will soon publish the results of its probes into Austria, Italy and India’s DST policies, which could lead to retaliatory tariffs being imposed by the US going forward.

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