2023 Budget Strengthens France’s Ability to Tax Big Tech

Following slow progress on international agreements, France has doubled down on its digital service tax.

First announced in 2019 and implemented in 2020, the digital service tax (DST), which targets companies with €750 million ($790 million) in an annual global turnover and at least €25 million in France, has been plagued with setbacks, including a legal victory for Amazon that has narrowed the scope of the levy and reduced its tax bill in the country.

After challenging tax authorities’ guidelines and arguing that they go beyond the law, the French Council of State sided with Amazon — one of the Big Tech firms targeted by the bill — in March of this year, concluding that revenue from gaming and logistics services should not be included within the scope of the tax.

However, an amendment to the 2023 budget, which cites the Council of State’s ruling as informing its rationale, is likely to close existing loopholes and nullify the March decision in Amazon’s favor.

As it states, “this amendment aims to make several clarifications relating to the application of the tax on digital services. It draws the consequences of the Council of State’s decision of March 31, 2022, which repealed several interpretations provided by tax doctrine relating to the scope of the DST.”

Discriminating Against US Firms?

The latest move to strengthen France’s ability to tax large digital services companies by clarifying the scope of the DST comes amid ongoing negotiations among members of the Organization for Economic Co-operation and Development (OECD) to introduce a global system for taxing firms with revenues in multiple jurisdictions.

The current proposal sets rules that would require multinational businesses with global turnover above €20 billion ($21 billion) to pay a proportion of their income taxes where their end users are located and be subject to a minimum corporation tax of 15% regardless of where they are headquartered.

An OECD tax agreement is seen as crucial in de-escalating a global tax race that has at times taken on the flavor of a trade war among otherwise friendly countries.

For example, in a report on France’s DST, Ambassador Robert E. Lighthizer, the U.S. trade representative under President Donald Trump, wrote that “the French DST is intended to and by its structure and operation does, discriminate against U.S. digital companies.”

The report goes on to argue that the selection of services included within the DST, the minimum revenue threshold and how it compares with other French taxes unfairly target U.S. businesses.

It also points out that the French finance minister Bruno Le Maire, as well as other officials and members of the French parliament, have repeatedly referred to the DST as the “GAFA tax,” using an acronym that stands for Google, Apple, Facebook and Amazon.

Digital Taxes Across Europe

France is not alone in introducing taxes that target large digital services companies. In Europe, Austria, Hungary, Italy, Poland, Portugal, Spain and the United Kingdom have all launched similar initiatives, although they diverge in the services they cover and the rates they apply.

That being said, Austria, France, Italy, Spain and the U.K. have stated their intention to repeal the existing tax regimes if necessary to avoid double taxation under any OECD agreement.

And while the OECD countries reached an agreement on a global tax framework last year, implementation has been slow, and EU politicians have voiced their concerns that a Republican-controlled House may prevent the U.S. from signing up.

As reported by the Financial Times in November, Zbynek Stanjura, finance minister of the Czech Republic, which currently holds the EU presidency, said that the EU will be forced to reconsider a bloc-wide digital services tax if the OECD deal falls through.

“I believe the longer these negotiations take, the less of a chance [there will be in] actually reaching an agreement,” Stanjura commented. “If we are not able to reach an agreement mid- or long-term, then Europe will go back to talks about digital tax.”

Regardless of the outcome of the OECD tax agreement, the message from the EU is clear: Big Tech companies that generate revenues in the EU should pay taxes in the region.

After all, even Ireland, which for years resisted calls for a global minimum corporation tax, eventually came on board with the idea after securing assurances that the 15% rate agreed wouldn’t be increased further down the line and that Ireland could continue to apply the lower 12.5% rate to companies with incomes below $790 million a year globally.

Prior to the signing of the OECD pact last year, Ireland’s favorable tax regime helped the country become one of Europe’s preeminent tech hubs, with Apple, Google and Meta all choosing to base their European headquarters there.

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