GAFA illustration
6 March 2019

Taxation: the outlines of the GAFA tax revealed

On Wednesday 6 March 2019, the Minister of Economy and Finance presented a bill aiming to impose a tax on the giants of the digital world.

What purpose will the GAFA tax serve?

The tax will target the digital sector's leading groups, to the tune of 3% of their digital turnover made in France as from 1 January 2019. Two goals are sought: development of taxation on data in order to finance tomorrow's public services and creation of a fairer tax environment in France.

"Digital giants pay 14 tax points less that Europe's small and medium-sized enterprises (SMEs)", the Minister of Economy and Finance, Bruno Le Maire, explained in an interview in the Parisien. "The fact that such companies pay less tax in France than a large bakery or a cheese producer in Quercy creates a real problem."

The Minister is aiming at annual revenues from the new tax of up to 500 million euros by 2020.

Which companies will have to pay the tax?

The "GAFA tax" targets two large sectors:
  • First of all, digital platforms, i.e. companies that receive commissions for putting customers and companies in contact with each other. "A company that puts its own products on sale on its website will not be subject to the tax", Bruno Le Maire specifies.
  • Secondly, online advertising, in particular activities to do with advertisement targeting and resale of personal data for advertising purposes.
In order to determine what is and what is not a "digital giant", the Minister of Economy and Finance has set two thresholds: one for companies with a global turnover on their digital activities of 750 million or more euros and the other for those making a turnover of over 25 million euros in France. The tax on digital giants should concern a total of thirty or so groups, most of them foreign.

These thresholds also enable reduction of the tax burden on startups in order to foster their development in France. Another point worth bearing in mind: "virtuous" companies, which pay taxes in France, will be able to deduct the amount of tax paid from the accounting result on which corporate tax is calculated. "This will have the effect of reducing amounts of corporate tax by up to a third for companies who pay their taxes in France", the Minister points out.

France, a pioneer of digital data taxation

Although France is pioneering digital data taxation, it is not the only country to be making progress in this area. Six European States are working on the subject, including Germany.

In Bruno Le Maire's eyes, the French initiative is a first step that will lead to others: "For all these large digital companies, European consumers are of key importance", he states. "The fact that rich and powerful nations are committed to taxing the digital world is leading OECD countries to make their own moves".

Another lever of attractiveness: the transition to more advantageous taxation for companies by 2022. "The reduction of corporate tax from 33.3% to 25% for all companies is a great deal more attractive than what digital taxation may represent", the Minister asserts. "That's what location of research centres and data centres will depend on, along with the research tax credit".