As US tech giants react with fury, what does the G7 deal mean for France’s GAFA tax?

As US tech giants react with fury, what does the G7 deal mean for France's GAFA tax?
Tech companies make big profits in Europe. Photo: AFP
A trade group representing US tech giants including Google, Amazon and Facebook has reacted with fury to the G7 deal that would leave France's digital tax in place.

The US trade group the Computer & Communications Industry Association reacted after the French president Emmanuel Macron reached a deal with US leader Donald Trump that would leave the tax in place for the moment.

What does the trade group say?

“France's unilateral digital tax action aimed at leading American companies is unjustified, and if tolerated, will encourage other countries to follow their example,” said Ed Black, the president of CIAA, which counts Google, Amazon and Facebook among the companies it represents.

“We should not support a compromise that would green-light discriminatory taxes against US tech companies for some vague promise of possible partial reimbursement years later.”

“It is hard to imagine that the US would take no action against France's digital tax targeting US companies.

“It is unclear how US companies would benefit from permitting France to flout its trade obligations.”

Joe Kennedy, of the Information Technology & Innovation Foundation, a think tank often aligned with the industry, also said the US should reject the deal.

“If the United States gives France a pass now, then it will be open season for other foreign governments to go after major American employers and impose similar taxes,” he said.

Google had no comment on Monday's announcement but pointed to previous statements supporting a new global tax treaty while warning of “dangerous repercussions” from the French tax.


Facebook CEO Mark Zuckerberg at the Elysées Palace earlier this year. Photo: AFP

What is the tax in question?

The French parliament in July passed legislation to tax tech firms that operate in France, the levy has become known as the GAFA tax, named after Google, Amazon, Facebook and Apple.

It's a levy of three percent of revenues of tech firms which take in €750 million or more annually.

Macron had initially attempted to lead efforts to pass an international tax on digital companies, but enacted the French legislation after becoming frustrated at the slow pace of negotiations on a new global accord that would allocate more tax revenues of large international tech firms outside their home countries.

Why is it just for digital companies?

It's an attempt to address a current loophole where the big tech giants structure their business so that they pay tiny amounts of tax in countries where they make vast profits.

Under EU law, internet giants can choose to report their income in any member state, prompting them to choose low-tax nations such as Ireland, the Netherlands or Luxembourg.

Most tech giants have millions of users in France and make big money – for example Amazon recorded €25 million profit in France last year – but pay negligible amounts of tax.

The European Commission concluded that Apple had paid an effective corporate tax rate of just 0.005 percent on its European profits in 2014 – equivalent to just €50 for every €1 million.
 
Macron has described this system as “crazy” saying that it effectively gives permanent tax haven status to tech companies.
 
“The global tech players do not contribute financially to the funding of the common good, it is not sustainable,” the president told reporters ahead of the G7 summit in Biarritz.
 

The deal was announced in a joint press conference between the French and American leaders. Photo: AFP

So what happened at G7?

US president Donald Trump had been very critical of the French tax, and had threatened to impose tariffs on French wine in retaliation. However after what appeared to be an amicable meeting, he and Macron announced a compromise.

The French tax will stay in place until an international levy is decided, and if US companies end up paying more to France than they do under the yet-to-be-decided international formula, the French tax authorities will reimburse the difference.


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