Culture 3 min read

How France's Digital Tax Could Affects Tech Companies

Image courtesy of Shutterstock

Image courtesy of Shutterstock

For a while now, the European Union have been considering ways to introduce a digital tax. However, a division between the member countries has stalled the plan until France made a move.

In July 2019, French lawmakers finally passed the controversial digital tax law to the disapproval of the United States government. While the new bill has several political ramifications, how exactly does it affect the tech companies in question?

Before we provide the answer, let’s begin with the most obvious question.

What is a Digital Tax

Simply put, it’s a levy placed on the sales of online advertising, electronic data, and the services of online intermediaries such as Airbnb Inc. and Uber Technologies Inc. that connect users to services.

Under the bill, companies with at least €750 million in global revenue and digital sales of €25 million in France from certain digital activities have to pay a 3 percent tax on annual income.

Unlike taxing profits, which requires establishing where earnings accrue, the digital service tax focuses on where users of online services are located. For example, since Google makes part of its money from France’s cyberspace, the company has to pay the French government from its earnings in the country.

But, it’s not only Google.

According to The Washington Post, about 30 businesses would be affected by the new bill, including Facebook and Amazon.

How Can Digital Tax Affect Tech Companies?

As you may have guessed, the biggest technology companies like Amazon, Alphabet, and Facebook are most affected by France’s digital tax.

Now, you may argue that the consolidated figure of 500 million Euro is not a significant sum to these tech companies. While this is true, the new bill has successfully opened a pandora’s box.

Other countries, particularly in Europe, might also hasten efforts to tax tech companies.

Economic growth has slowed down across the world. According to reports, real global economic growth will slow to 3.2 percent this year, 0.1 percentage point slower than the forecast in April, and down from 3.6 percent last year and 3.8 percent in 2017

As a result, countries that want to increase their spendings have to rely more heavily on their tax base, and tech companies just happen to be ripe for the taking.

The digital economy has been expanding at a fast pace. So, it was only a matter of time before governments would want part of the pie.

How are Tech Companies Fighting Back?

Tech companies have faced loads of EU backlash in recent times. From problems relating to market dominance to privacy issues, internet firms have been entangled in legal contests with the union.

Back in April, Google won a legal battle against a $1.2 billion French tax bill. Also, Amazon and Apple are currently fighting their respective European tax decisions in the EU court.

So, France’s digital tax would simply join the growing list of legal battles. Also, some companies may have to change their tax structures to stay ahead of the curve.

Read More: Spotify Lodges EU Antitrust Complaint to Combat “Apple Tax”

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Sumbo Bello

Sumbo Bello is a creative writer who enjoys creating data-driven content for news sites. In his spare time, he plays basketball and listens to Coldplay.

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