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France, Britain push ahead with new taxes on tech industry

This combination of pictures created on July 10, 2019, shows a Facebook logo in Nantes, France, an Apple logo in San Francisco, a Google logo in Chongqing, China, and an Amazon logo in New York.
This combination of pictures created on July 10, 2019, shows a Facebook logo in Nantes, France, an Apple logo in San Francisco, a Google logo in Chongqing, China, and an Amazon logo in New York. (Loic Venance/AFP/Getty Images)
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France’s Parliament formally adopted a controversial tax on tech-company revenue Thursday as Britain published similar draft legislation, accelerating a new battle over digital taxation that is likely to spread to other countries.

The French measure, which would impose a 3 percent tax on certain revenue that large tech companies earn inside France, follows French accusations that Google, Amazon, Facebook, Apple and other mostly U.S. companies were paying insufficient income tax.

Britain proposes a 2 percent tax on revenue earned from the provision of social-media, search-engine or online-marketplace services to British users, the country’s treasury department said.

The Trump administration this week tried to discourage the passage of such taxes by opening an unfair-trade investigation into the French measure, which could eventually lead to U.S. retaliatory action.

But more than half a dozen other countries are considering similar taxes, in a sign that the U.S. tech industry is facing a ballooning global fight over how its profits are distributed.

“It has quite wide support here in France on the basis that there is a lot of money made on this digital activity,” Louis Maurin, director of the research institute Inequality Watch, said of the French plan. The public feels “the companies get a lot of money without paying any taxes,” he said.

French Finance Minister Bruno Le Maire said in April that large digital companies “pay 14 percentage points less tax than European small and medium enterprises.” He added: “The fact that these companies pay less tax than a cheese producer in Quercy is a real problem.”

Tech firms disputed the idea that they are not paying enough. “Facebook pays all taxes required by law in the countries in which we operate, and we will continue to comply with our obligations,” the company said Thursday.

Google on Thursday defended its global tax payments and voiced support for a new “comprehensive and multilateral agreement” on tax, rather than “discriminatory unilateral taxes.” Apple declined to comment.

Amazon did not respond to a request for comment. This week, the company called the French tax “discriminatory.” (Amazon founder and chief executive Jeff Bezos owns The Washington Post.)

A big sticking point in the debate is the increasingly virtual nature of global business. The treaties that underpin global taxation are nearly a century old and were designed in a time when companies typically had factories or other brick-and-mortar facilities in the countries where they did business.

Under those treaties, a company is generally liable to pay tax in a country if it has a physical presence there. But in the digital era, more and more companies — including many beyond the tech industry — conduct business from afar, without a physical presence, making current treaties outmoded, experts say.

“Where there is no physical presence there is no right to tax. In this digital era, is this relevant any longer?” Pascal Saint-Amans, director of the Center for Tax Policy and Administration at the Organization for Economic Cooperation and Development, said in an interview.

Saint-Amans’s team at the OECD is leading a multilateral negotiation aimed at updating tax treaties to better reflect the digital age. The Trump administration and the U.S. tech industry are pushing all countries to try to settle their tax grievances through that OECD process instead of enacting unilateral measures.

“The United States will continue its efforts with other countries at the OECD to reach a multilateral agreement to address the challenges to the international tax system posed by an increasingly digitized global economy,” the Office of the U.S. Trade Representative said Wednesday as it announced its investigation into the French tax.

But the OECD process will take at least 18 months more to be concluded, and some countries are unwilling to wait.

“Agreeing and implementing a detailed global solution will take time,” the British treasury department said Thursday. “It’s for that reason that the government took the decision to introduce an interim digital services tax.”

The treasury said the draft legislation has the “intention of ensuring digital businesses pay U.K. tax reflecting the value they derive from user participation.” It added that the government was willing to scrap the new tax “once an appropriate international solution is in place.”

Despite the pressure of the U.S. unfair-trade investigation, French officials on Thursday defended the tax as it cleared a vote in the Senate. The measure had already passed the lower house of Parliament and awaits the signature of President Emmanuel ­Macron, who has voiced support for it.

“France is a sovereign state, it decides its fiscal provisions in a sovereign manner, and it will continue to decide its tax decisions in a sovereign manner,” Le Maire, the finance minister, said in a speech to the Senate on Thursday.

“I believe profoundly that between allies, we should and we can settle our differences by other means than threats,” he added.

France has said the tax will affect about 30 companies, including Google, Apple, Facebook and Amazon. It calls the levy the “GAFA” tax after the initials of those companies.

Among the other countries considering similar taxes are Poland, Austria, Italy, the Czech Republic and New Zealand. Austria’s draft legislative package, published in April, would impose a 5 percent tax on digital advertising revenue earned in Austria.

In addition, it would eliminate an exemption from value-added tax for low-value packages that consumers import through companies such as Amazon. And the legislation would require online platforms that connect buyers and sellers, firms such as Airbnb, to report all transactions in Austria to the tax authorities, according to Austrian officials and Ernst & Young.

Some nonprofit groups that campaign for higher corporate tax payments say the new digital taxes do not address wider problems in the tax system.

“The taxes that only target a very limited number of corporations really are sticking plasters,” said Tove Maria Ryding, tax coordinator at the European Network on Debt and Development. “Because the problem we have is not just about big IT companies; we have a problem that multinationals in all sectors of the economy really are paying not much tax.”

Michael Birnbaum and Quentin Ariès in Brussels and Tony Romm in Washington contributed to this report.

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