July 16, 2019

Anna Murray 

The French Senate passed a digital law on July 11 that would impose a 3% levy referred to as “GAFA tax” on the total annual revenues of 30 technology firms, primarily American tech giants like Google, Apple, Facebook, and Amazon in providing services to French consumers. Professor Lilian V. Faulhaber at Georgetown University Law Center previously working on international tax issues at the Organization for Economic Cooperation and Development (OECD) wrote the New York Times on July 15 an article related to France’s new digital services tax (DST).

France’s new DST is not just a unilateral move by a single country seeking to tax multinationals on revenue. It is part of a much larger trend, with countries in recent years proposing for new international tax provisions. The UK’s diverted profits tax (DPT) will come into effect on April 2020 a digital services tax of 2% on the revenues of online marketplaces, search engines, and social media platforms serving British customers. In addition, Professor Faulhaber added Australia’s multinational anti-avoidance law (MAAL) and India’s significant economic presence (SEP) tax being seriously contemplated digital services taxes like France’s new DST. In other words, they all reflect that OECD’s international tax system that originated in the early 20th century has failed to keep up with changes in the economy. In accordance, the OECD has been working with 131 countries and expects to reach a consensus on an international solution by the end of 2020.

Professor Faulhaber indicated one possible path for countries to “follow France’s lead and impose their own digital services taxes”. This could lead to companies subjected to layers of digital services taxes from different countries and retaliatory measures taken from the US. Another possible path would be for countries to “see France’s move as a portent of the disorder” that could push them to participate more fully in the OECD’s digital tax project with “significant changes to the international tax system … for increased taxes, taxation in more countries and new rules for companies.” The new rules could offer companies more opportunities to avoid double taxation or resolve occasional disputes.

President Donald Trump ordered the Office of the US Trade Representative to investigate whether France’s new digital tax discriminates against American companies, which in turn could lead to US trade sanctions retaliate against France. Bruno Le Maire, the Minister of Economy and Finance for France, said on July 11 that “My message to our American partners is that (the tax) should encourage them to accelerate even more the work on an international digital tax solution at the OECD level.”

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