Euro bills, at-sign and electronic income tax form
12 July 2019

Tax on digital services: an efficacious fiscal justice measure

Minister Le Maire has applauded Parliament's definitive adoption of a tax on the digital giants on 11 July 2019, following a final vote by the Senate. This is a text of major importance, bearing on revision of corporation tax as well as on taxation of digital services.
 

A reduction in corporation tax as from 2020

The first part of the text bears on reduction of corporation tax. The President of the Republic's commitment to arriving at a 25% corporation tax rate for all companies by 2022 will be fulfilled: all French companies, without exception, will see their corporation tax rate fall from 33.3 to 25% by 2022.

Reducing the tax will provide more room for manoeuvre with regard to investment, innovation, and success in the 21st century's technological battle. It is also a key factor in the country's attractiveness. If France has become Europe's most attractive country for foreign investors, it is because commitments on taxation have been made in order to make French territory more attractive and develop investments and jobs across our soil.

The reduction will come into force for all companies in 2020, even though it is reasonable to ask the biggest companies to make a little more effort while keeping to the plan to reduce corporation tax and the goal of 25% in 2022.

Taxation of digital giants

This newly introduced taxation is first and foremost based on a simple diagnosis: data creates value, yet taxation of the data that creates such value is not the same as it is for other goods. The current situation – which has been clearly detailed by the European Commission – is unfair: taxation of data is 14 points lower than that of other economic activities. This is both unfair and inefficacious.

The new tax re-establishes fiscal justice by obliging this new economic model to obey the same rules as those applying to all other economic activities. It is also a question of efficacy, as it should enable funding of public goods, environmental investments, primary and secondary schools, crèches and hospitals by taxing the activities that create the most value.

The tax is 3% and is levied on turnover. It only concerns companies whose turnover from provision of digital services exceeds 750 million euros at international level and 25 million euros at national level. Once the OECD has adopted a credible solution for taxation of digital activities, France will revoke its national tax.

The tax's legal certainty has been confirmed. At national level by the Council of State and at European level by the European Commission, as the scheme had been put forward by the Commission itself.

Europe should switch to qualified majority voting for decisions on certain fiscal provisions

It was good policy to have planned for a report on the evaluation and evolution of international negotiations.

Conclusions must also be drawn at European level: the need to switch from unanimity to qualified majority voting on decisions bearing on certain fiscal provisions, as a minority should not be able to block the majority in Europe. It cannot be seen as normal that 2 countries supported the tax when it was first proposed, then 5 as from October 2017 (Spain, Italy, Great Britain, Germany and France), 19 at end October 2018 and 24 States at the final stage of voting, but that in the end 4 European States were able to block the agreement reached with the 23 others (Sweden, Finland, Denmark and Ireland).

An international solution by the OECD

The American administration has stated that it is going to initiate proceedings under Section 301 following the adoption of the tax on digital giants. Bruno Le Maire points out that this is the first time in the history of the relations between France and the United States that the American administration has decided to initiate such proceedings, and believes “deeply that, between allies, we can and must settle our differences by using methods other than threats. France is a sovereign State; as such it decides on its fiscal provisions independently and will continue to decide on its fiscal decisions independently”.

This national tax should act as an incentive to further speeding up work at the OECD on finding an international solution. The upcoming G7 Finance Ministers' meeting set to be held in Chantilly should lead to acceleration of work at international level, to find a common solution at OECD level, reached by way of agreements rather than by threats.

More generally speaking, everyone is well aware of the emergence of economic giants that verge on being monopolies. They want maximum control over data and, with no decisions being made, seek to escape taxation. They introduce instruments of exchange that could soon take the form of sovereign currencies. Bruno Le Maire therefore believes that it is the responsibility of elected representatives and the public authorities to prevent the emergence of companies that are looking to become private States, with all the privileges that States enjoy but without any of the constraints and controls that go with them.

France is therefore unwavering in its determination to implement a fair system for taxing digital services, as justice and efficacy alike require it. Its determination, along with all its European partners, to implement a regulatory framework on data that protects private life is equally unwavering, as is its determination to ensure that the cryptocurrency (Libra) under development by Facebook does not become a sovereign currency that could compete with States' currencies.


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