French digital service tax hurts global tax reform

The French Senate in July approved a 3% tax that will apply to revenue from digital services acquired in France by companies with more than 25m euros in French revenue and 750m euros worldwide.

Amazon‘s international tax policy director Peter Hiltz said more than 10,000 French-based businesses are selling on Amazon’s online stores and announced that certain fees would increase by 3% on sales starting from October 1st.

Alphabet Inc. Google, Facebook Inc. and Inc. and leading trade associations testified against the tax Monday at a hearing in front of the office of the US Trade Representative and other government officials.

Major tech firms and US technology industry groups said Monday that France’s new digital services tax undermines the global tax regime and multilateral efforts to reform it.

The US Chamber of Commerce said the tax would generate revenues of nearly 500m euros ($ 554m) a year “a large majority of which will be paid by US firms” and would cost US firms millions to perform “significant reconstruction of accounting systems to ensure that they can accurately assess” liability.

“It goes beyond the outlines of what we expect outside the OECD,” said Daniel Bunn, director of global projects at the Tax Foundation, commenting on OECD’s widespread efforts to create a global agreement on taxing the digital economy.

Big tech firms warned of rising costs.

“Unilateral measures like the DST are detrimental to Facebook and the digital economy,” Alan Lee, global head of tax policy at Facebook, said in a statement.

Matthew Schruers, chief operating officer at the Computer and Communications Industry Association (CCIA), representing companies such as Intel Corp, eBay Inc. and Netflix Inc., said at the tax hearing “undermines the progress made” in a new tax system in the digital economy and “supports an aggressive response to this problem.”

“The CCIA believes the move warrants a substantive, proportionate response from the United States,” Schruers said, adding the tax “undisputedly” targets US firms in a bid by the French government to “ring” them.

Last month, President Donald Trump threatened to tax French wines or other products in response. The USTR may impose new tariffs after a public comment period ends August 26.

Other EU countries have also announced plans for their digital taxes, arguing that a tax is needed because large, multinational Internet companies book profits in low-tax countries like Ireland, whatever their revenue comes from./

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