July 11, 2019–The French Parliament enacted new legislation today to tax digital companies, including Google, Apple, Facebook and Amazon, earning over €750 million ($844 million) a year.
The GAFA tax marks the first time a national government would be garnering income from high-tech’s increasing use of data collection and targeted online advertising.
Moreover, it might pave the way for international efforts to tax the digital, global economy.
Revenue Raiser
The tax, known as “GAFA” for the four highest-revenue tech companies, is expected to generate about €400 million in revenue for France this year and €650 million in 2020 ($450 million in 2019 and $730 in 2020).
It applies to companies with total annual revenues of €750 million globally with €25 million of that earned in France. It could impact as many as 30 companies, including Airbnb, Criteo, Instagram and Uber.
The new tax is outlined in Article 1 of the Law Project, the full text of which is located here.
French President Emmanuel Macron embraced the digital tax during the “yellow vests crisis” at the end of 2018 as a way to pay for economic and social programs, according to French newspaper Le Monde.
High-Tech Revenue from Data
The tax would apply to revenue from targeted online advertising that matches ads to individuals’ tastes based on their internet usage. It would include the sale of data for advertising purposes and the linking of users.
Notably, it would not tax online commerce, communication services or payment services.
The goal, according to sponsors, is to counteract the decline in corporate tax revenue, particularly from digital multinational firms.
US Challenge & French Defense
Ahead of today’s final passage, U.S. Trade Representative Robert Lighthizer launched an investigation to explore whether the tax would be discriminatory against U.S. commerce. If so, the U.S. could impose counter measures.
French officials, however, were resolute.
“France is a sovereign nation,” said French Finance Minister Bruno Le Maire following the Senate approval. He defended the action in a press conference as a national right and called on U.S. officials to work toward an international solution. “We take our decisions related to taxation issues as a national sovereign nation.”
International Efforts
The USTR statement pledged to work “with other countries at the OECD to reach a multilateral agreement to address the challenges to the international tax system posed by an increasingly digitized global economy.”
International discussions are ongoing. Finance leaders from industrialized nations who met as part of a G20 Summit in Japan last month discussed plans to explore technical solutions to the challenge of loss of revenue due to the digitization of the economy. The OECD produced a 44-page outline for the summit of the challenges and scope of work ahead.
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