France has finally approved a digital services tax on tech firms despite threats of retaliation by the US, which argues that American tech giants were the primary target. The tax will be levied on sales generated in France by multinational firms like Google, Amazon and Facebook.
The French senate approved the new 3 per cent tax on Thursday a week after it was passed by the lower house, the National Assembly.
According to the French government, the digital companies headquartered outside the country pay little or no tax.
The levy is on digital companies that earn more than €750m ($850m; £670m) – of which at least €25m is generated in France.
Expcted to raise about €400m this year, it is understood that the tax will be retrospectively applied from early 2019. The new tax will be based on sales made in the country, rather than on profits.
The European Commission estimates that on average traditional businesses face a 23% tax rate on their profits within the EU, while internet companies typically pay 8% or 9%.
Even though Chinese, German, Spanish and British companies are among those affected, majority of them are American firms, a situation that could trigger retaliatory tariffs from the US which has since ordered an inquiry into the move.
On Wednesday trade representative Robert Lighthizer said an investigation would “determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce”.
Most of the tech giants have their headquarters in low corporate tax countries like Ireland. Facebook, Twitter, Google, Paypal, LinkedIn, eBay, Amazon and many others currently have their Europe headquarters in Dublin around Grand Canal Dock, an area that has now been nicknamed “Silicon Dock”, a derivation from Silicon Valley in California, USA.
Ireland’s corporate tax rate is just 12.5 per cent a huge attraction for entrepreneurs in Europe.