Regulation: Europe moves to tax U.S. tech giants
Vexed that “digital businesses are not paying their fair share” in taxes, France last week passed a tax that will hit Google, Facebook, and other U.S. internet giants, said Jim Tankersley and Alan Rappeport in The New York Times. Big Tech multinationals have skirted existing tax laws that are based on where the company has a physical presence, rather than where their users live—while vacuuming up consumer data to sell online ads. Now French lawmakers have voted to approve “a so-called digital tax of 3 percent on the revenue companies earn from providing digital services to French users,” and Britain, Spain, and Germany could be next. The Trump administration has risen to Silicon Valley’s defense, saying it plans to investigate whether the tax amounts to an unfair trade practice and is subject to retaliatory tariffs. But enough is enough: Digital companies have reduced their “tax bills to paltry levels by domiciling in jurisdictions such as Ireland and Luxembourg,” said the Financial Times in an editorial. Amazon paid “only 1.7 million pounds ($2.1 million) in U.K. corporation taxes in 2017, even as its British profits soared to 72.3 million pounds ($90 million).” That’s unfair to “other businesses that do not trade internationally and to governments, which lose substantial revenue.”
The tax targets roughly 30 companies that generate at least 750 million euros ($845 million) in annual revenue worldwide, said Elizabeth Schulze in CNBC.com. That means it falls mainly on U.S. companies— and on French consumers. One study found that ultimately “consumers will absorb 55 percent of the cost and 40 percent will be borne by businesses that use digital platforms.” This form of taxation—on sales, not profits—also “opens up some bizarre outcomes,” said Tom Braithwaite in the Financial Times. Of course, the misbehavior of some companies is responsible for this wave of Big Tech backlash. But the tax could wind up punishing low-margin companies that haven’t done anything wrong. “A loss-making high-growth tech company could have to raise more venture capital money just to pay its tax bills.”
“Trump has been hunting for reasons to extract trade concessions from the European Union”—and French president Emmanuel Macron just gave him one, said Lionel Laurent in Bloomberg.com. The U.S.’s choice to respond with a probe under Section 301 of the U.S. Trade Act is “telling”: Trump used the same inquiry against China. “This is the stuff of trade wars.” Clearly, the White House wants to “drive a wedge” between France and other EU members, such as Ireland, which “has fought hard against the idea” of a tech tax. Whether other countries follow France will depend on how much stomach European lawmakers have for standing up to Trump’s “divide-and-rule tactics.”