France’s troubles with taxes at the end of 2018

Bruno Le Maire, French Minister of Finance, said on December 4th, 2018, that France will introduce a tax on digital giants on the national level from 2019 even if the European Union members fail to reach an agreement on the issue.

Digital tax for tech giants

In March 2018, The European Commission revealed a proposal to tax firms such as Google, Amazon, Apple, and Facebook on their revenue, which could reportedly bring €5 billion per year.

According to this proposal, the profits of these international companies working in the digital space would be taxed inside the borders of the EU countries. They currently pay 9.5% effective tax rate in the EU, while traditional businesses pay 23.2%.

This announcement initially received the support of five biggest economies in Europe – France, Germany, Italy, Spain, and the United Kingdom. However, France emerged as the leading proponent of this proposal, while the other countries seemed to gradually back away.

Germany continued to show support for France but advised caution because, just like other EU countries, Germany feared that the introduction of this digital tax could cause the USA to retaliate, and this would affect the German automobile industry. This meant that it would be very difficult to get the unanimous approval from all the members of the EU for the tax proposal (as it is required).

According to some sources, the USA would accept a temporary levy on its digital companies under only one condition – that the EU commits to overhauling global corporate tax rules. This meant that companies would not be taxed based on where they book profits, but on where they make money. Germany worried that since its industry is primarily export-based, its business abroad would be subjected to new taxes, and other countries would start issuing new levies on their cars, as well.

Germany’s finance minister, Olaf Scholtz said that the policy on digital tax should be coordinated internationally, and experts agreed that this meant Germany would avoid an open division with Paris, but would not lobby on its behalf actively.

The opposition

However, a group of countries strongly opposing the introduction to digital tax was formed, led by Ireland, the Czech Republic, Sweden and Finland in support of digital companies claiming that they would be taxed twice on the same revenue. Ireland led this group firmly opposing the taxation as it feared that trade tensions with the USA might arise and the European competitiveness might be damaged.

Current corporate tax in Irelands is very low (12.5%), and this country is the host to a great number of tech firms, such as LinkedIn, Adobe, Airbnb, Google, and Facebook.

On December 4th, France and Germany presented a revised plan for the proposed digital tax reforms, abandoning plans for imposing a wide-range digital tax on digital companies, in favor of a levy on advertising sales, which is likely to exclude Apple and Amazon from its scope.

Both German and French Ministers of Finance agreed on this proposal, and the initiative is set to come in force in 2021 if an agreement is reached on an internationally implemented digital tax regime. The other finance ministers should reach a consensus before March 2019.

Many member states, including Spain, Slovakia, and Italy, criticized this plan for not being ambitious enough, and the UK and Spain representatives said that their countries would move forward with their plans on digital taxes while the talks on a broader, international level, are stalled.

The “Yellow Vests” protest

At the same time, France is faced with massive protests lasting several weeks against the government’s decision to increase taxes on fuel to move away from fossil fuels.

Last week, the government canceled a planned tax rise on petrol and diesel in an effort to defuse the situation after four weeks of protests which turned radical.

The movement of “gilets jaunes” (“yellow vests”) first started as an online protest against the rise of fuel prices, but it quickly spread to a broader anti-Macron rebellion, with demonstrators blocking major French roads and violent protests occurring in some of Paris’ elite arrondissements.

The protest started as the French people believed that the potential increase of tax on diesel which is commonly used by French motorists, and the carbon tax, would primarily affect those who commute every day.

According to transport experts, this hike in fuel prices happened due to a rise in crude oil prices that this year has seen. In October 2018, a little more than €80 was wanted per barrel, and due to euro being weak in regards to the dollar, the motorists were the ones most affected by this increase.

Additionally, there was an increase in the carbon tax, which was introduced in 2014, in an effort to limit greenhouse gas emissions. This tax affects a part of the domestic consumption taxes, and the government came forward with a plan to increase it even more next year (from current €39 to €47.5).

If that was not enough, the adjustment of the tax on diesel and the tax on petrol made diesel prices increase, meaning that the tax on diesel went up by 7.6 cents per liter, and the petrol tax went up by 3.9 cents per liter.

The government officials said that the carbon tax needed to be increased so that the country could continue on its path of fighting the climate change, and the alignment of diesel and petrol taxes had to happen because researches pointed out that diesel was just as much polluting as petrol. The additional revenues that the taxes would bring were supposed to be used for eco-friendly projects.