France is not making many friends with new tech tax idea

The idea would see tax paid on revenues as opposed to profits

The French Finance Minister has put forward new proposals to shake-up the tax set-up for technology companies who are based outside of the European Union, reports Telecoms.com (Banking Technology‘s sister publication).

Under the current rules, internet giants such as Google or Facebook are taxed on profits which are generated in Europe, though French Finance Minister Bruno Le Maire is leading a charge towards chaos. The idea here, which is also supported by Germany, Spain and Italy, would see tax paid on revenues as opposed to profits, according to the Financial Times.

“The amounts raised would aim to reflect some of what these companies should be paying in terms of corporate tax,” a letter outlining the initiative reads. “We should no longer accept that these companies do business in Europe while paying minimal amounts of tax to our treasuries.”

The amount itself could be fixed at somewhere between 2-5% and could see the technology giants contributing monstrous amounts of cash into the bank accounts of the nations in which they operate. Just to put a bit of context onto the situation, AirBnB paid less than €100,000 in tax in France last year, despite France being the second largest market for the firm after the US.

And while this would certainly be a headache for the tech giants, Le Maire wants these rules to an European Commission (EC) level. This is a move which could escalate into quite a row, but it is worth noting the French might have to send quite a few garlic related gifts to Ireland and Luxembourg before the spanner makes itself truly known.

For the idea to be made official by the EC, it would have to receive the thumbs up from every single member state. Considering Ireland and Luxembourg have essentially built their economies on being tax-havens for multinationals looking to save a bit of cash in Europe, it is far from a given. Should Ireland and Luxembourg vote yes, it would undermine the very reason companies base their headquarters there; we can’t see it happening in the foreseeable future.

But of course, the EC is thrilled by the idea. Considering the Commission is about to lose a majority contributor to its bank account following the Brexit vote, such a financial boost would certainly be of interest.

“We’re very happy to see political interest in the taxation of digital companies,” says Vanessa Mock, Commission spokesperson for Taxation and Customs Union. “We trust that this momentum can be harnessed to drive forward our efforts to find solutions to the taxation of the digital economy.

“What’s important now is that we move forward with a common approach that can protect the Single Market. It’s essential that we maintain a level playing field so that all companies pay their fair share and that profits are taxed where the value is created – as they should be. It’s on this basis that we proposed the CCCTB for the more traditional ‘bricks and mortar’ economy. Now let’s look ahead to having the same principle apply to digital multinationals.”

This is an issue which the EC has been eyeing up for some time, as traditional businesses have become sub-standard to the booming digital economy. Back in 2014, the Commission put together a task force to investigate how rules should be adapted to the digital economy, but there has been little progress to date, as the monstrous amounts of cash seemingly flows one way across the Atlantic.

Perhaps an interesting little quirky to take from this development is the role of EC President Jean-Claude Juncker. While he might be the head witch-hunter for the moment, this has not always been the case. Prior to joining the Commission, Juncker was the Prime Minister of Luxembourg, and one of the individuals noted for raising the country’s profile on the international stage. Essentially he was one of the driving forces for making Luxembourg the tax haven it is today. An interesting position to find oneself in.

This is of course not the first time tax of the internet players has hit the press, and it certainly won’t be the last. Last year, Google faced a challenge from the French government, but it was ruled the baguette brigade could not touch Google’s Ireland-based subsidiary; these revenues were not taxable in France. However, the UK fared a bit better against Google, forcing the search giant to pay more tax on revenues generated from UK advertisers.

This is an argument which will rage on for some time, but we’re not too sure there will be any progress made on a pan-European scale in the foreseeable future. Considering the damage such a tax would put inflict on Ireland’s and Luxembourg’s relationships with the tech giants, we can’t see them being too happy about it, or voting for the rules to be adopted by the Commission.