A more comprehensive agreement must be negotiated at the OECD level on digital taxation.
A truce or a step back? France proposes to suspend for 2020 the payment of deposits due under the Gafa tax (for Google, Apple, Facebook, Amazon). In exchange, a more comprehensive agreement on digital taxation must be negotiated at the OECD, among all the developed countries.
Created in 2019 by the French Ministry of Finance, the Gafa tax targets digital giants who largely escape tax. But US President Donald Trump has brandished the threat of heavy customs taxes against French products if it were to be applied.
The Franco-American armistice should be concluded on the sidelines of the economic summit in Davos (Switzerland), between the French Minister of Finance, Bruno Le Maire, and the American Secretary of the Treasury, Steven Mnuchin, Wednesday January 22. Back on the emerging agreement, around four questions.
1What is this Gafa tax?
This French tax came into force in 2019. It must tax digital giants up to 3% of turnover made in France. This device is supposed to bring to the French State some 400 million euros (the net profit, in the world, of the only Apple company amounts to nearly 50 billion euros in 2019).
The Gafa tax relates in particular to targeted online advertising, the sale of data for advertising purposes and the linking of Internet users by platforms, explains this subject from France 2.
“Only companies exceeding two thresholds (750 million euros in turnover worldwide, 25 million for services provided in France) are concerned”, specifies the specialized site NextInpact. Suffice to say that the text was tailor-made to hit the American platforms present all over the world, and which escape tax by playing on tax optimization and the dematerialization of transactions.
2Why is Paris yielding (for now)?
Donald Trump never wanted this Gafa tax hitting American digital giants. He has always threatened, if it comes into force, to apply heavy trade sanctions. The showdown has obviously turned to his advantage. At the end of the G7 organized in Biarritz at the end of August, Paris has committed to “remove” its tax on digital platforms if another international tax targeting multinationals in the sector was adopted by the OECD.
But at the level of the OECD, the United States posed conditions at the end of December which were rejected by France. Washington defended “a digital tax that would only be paid on a voluntary basis. Unacceptable for the French”explains the newspaper The Opinion. Hence new Franco-American tensions over the Gafa tax, the first installments of which must be paid in 2020. The Trump administration said it was ready, if it was applied, to overtax “up to 100%” the equivalent of 2.4 billion dollars (just over 2 billion euros) of French products.
3What's going on now?
Discussions resumed behind the scenes. Monday, January 20, French President Emmanuel Macron praised the quality of the exchanges with his American counterpart Donald Trump on the “digital taxation”.
Excellent discussion with @realDonaldTrump on digital taxation. We will work together on a good agreement to avoid any escalation in prices.
– Emmanuel Macron (@EmmanuelMacron) January 20, 2020
Finance Minister Bruno Le Maire echoed it on Tuesday, January 21. “Emmanuel Macron and Donald Trump have agreed to avoid any escalation between the United States and France on this issue of digital taxation”, he said, arriving at a meeting in Brussels.
Concretely, according to The echoes, “A compromise is at hand. On the one hand, France is ready to suspend the payment, by the Gafa, of the installments – scheduled for April and November – of their tax payable for 2020. In return, the States- States would not raise customs taxes on wine “. Also according to the economic newspaper, “the two countries should also agree on a very precise timetable, with a view to concluding by the end of the year an international agreement drawn up for two years within the OECD“.
4Why this standoff with France?
Because Washington fears that this tax will spill over. In an interview with Wall street journal Released Tuesday, Steven Mnuchin threatens Britain and Italy of customs reprisals if these two countries create their own digital tax, as they think.
The truce that seems to be taking shape with France “runs until the end of 2020. This deadline allows Donald Trump to step over the American elections “, highlighted The Opinion. It will no doubt be easier then to conclude an agreement on digital taxation within the framework of the OECD.