France Implements Digital Services Tax for Tech Companies

November 26, 2020
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U.S. tech giants will pay more tax in Europe, with a new French law requiring a digital services tax on all transactions moving forward. Large tech companies like Google, Amazon, Facebook, Microsoft, and Apple will all be impacted by the new law.

While the tax will generate essential revenue for the French government, it could also attract retaliatory tariffs from the American government.

Lack of OECD Progress Forces France to Act

France previously halted collections of its digital services tax, hoping that the Organization for Economic Co-Operation and Development (OECD) would find an alternative that global members could adhere to.

However, with no progress on negotiations, the French government has decided to act on its own.

The digital services tax is implemented at a rate of 3%. It covers digital sales of online services like video and music streaming, cloud storage, and software suites. It will apply to any business with global revenue of more than $845 million, or $28 million in France.

Although the first to implement such a tax, other European nations are considering similar moves. The United Kingdom has considered a 2% digital tax on companies that make more than $627 million in global revenue.

U.S. representatives had previously asked France and the U.K. to wait until multilateral agreements could be made to make taxes fairer. The U.S. election cycle has disrupted any progress on this front.

How Can America respond?

American companies that want to do business in France will have to comply with the new tax laws. However, relief could come in the form of U.S. tariffs that put pressure on the French government to reconsider its position.

President Trump, who has successfully used tariffs to force trade negotiations with China and other nations, has suggested that new tariffs could be added to French products like wine, cheese, designer apparel and accessories, and cosmetics. These are some of France’s most valuable exports.

Investors should watch the market closely in the coming days to look for any impact that this news might have on the major tech companies. Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL), and Amazon (NASDAQ: AMZN) are three of the most important ones to watch.

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