The GAFA Tax: The French Experience

The tax that plans to take 3% of revenue from digital giants is more crucial and reasonable now than ever as countries all over the world, including the United States, grow concerned about the power of these sectors.

France may well be one of the world’s leaders in imposing compulsory taxes, but sometimes levying a tax may be the most appropriate thing to do. Enter the digital tax adopted by Parliament on July 11. (Sorry, Donald Trump.)

The initiative, which aims to thwart the tax optimization strategies of internet giants by deducting 3% of their turnover in France caused alarm in the United States. Washington has begun looking into whether the tax is “discriminatory or unreasonable” and “impedes or restricts U.S. trade,” leaving open the threat of possible trade retaliation.

Not only is this GAFA* tax legitimate and necessary, but the United States is in no position to preach about fair play when its president has embarked on an all-out trade war that is as useless as it is dangerous.

You’d have to be blind or deliberately obtuse not to admit that the taxation of these digital companies needs serious reform to adapt to the digital age. For years, thanks to the accounting tricks and ingenious exploits of subsidiaries based in countries with attractive tax rates (Ireland, Luxembourg), these internet giants have been systematically relocating their profits by creating a disconnect between their economic activity and their locally declared profits. GAFA companies pay on average half as much tax as traditional companies.

Paris Is Not Alone in This Battle

Contrary to what Washington suggests, this is not a dispute between France and the United States. For a start, that is because this tax will affect European and also French companies. So, Paris is not alone in this battle. The U.K. has also just introduced a bill to introduce a 2% tax on web giants’ turnover, while Spain, Italy, Austria, Belgium and Australia have made use of in similar initiatives. The mounting pressure has caused the issue to be placed on the agenda of the next meeting of the finance ministers of the Group of Seven leading industrial nations on July 17 and 18 in Chantilly, and at the meeting of the G-7 heads of state in Biarritz in late August.

Contrary to what Trump alleges, it is not a question of opening a new trade front, but rather of reaching an international consensus to finally establish a fair tax system. The fact that the European Union has recently failed to reach an agreement on the subject − Denmark, Ireland, Sweden and Finland opposed it − does not mean that Brussels must give up on this issue, but simply that, once again, the rule of unanimity is acting as a hindrance to the effective functioning of the European project.

Who will Trump try to convince that this French initiative is discriminatory? This is the same Trump who has violated the rules of the World Trade Organization by increasing tariffs, while also engaging in fiscal dumping to repatriate the profits made by these same GAFA companies, harming the tax revenues of EU member states in the process. Countries all over the world, including the United States, are growing increasingly concerned about the power of these digital giants. Whether it’s competition or taxation, it’s time for them to play by the same rules as other companies.

*Editor’s note: GAFA is an acronym for Google, Apple, Facebook and Amazon.