GAFA tax: no legal, economic or political sense

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In view of the difficulties encountered in reaching a consensus at European level on the digital tax package, France, similarly to Italy, Austria, Spain and the United Kingdom, decided to introduce a domestic digital tax bill.

The French tax, as contemplated, would come into force as of 1st January 2019, and apply to all companies generating global annual turnover of at least € 750 million and annual turnover in France of at least € 25 million. The applicable rate would be capped at 5% and would vary in accordance with the amount of the relevant company's turnover. This, moreover, is a fundamental difference between the French tax bill and the European draft legislation (which provides a threshold of a minimum turnover of € 50 million generated within the EU and a fixed rate of 3%).

The officially-advanced purpose is to tax digital businesses who declare only minor income on national territory. As a result of the way it is structured, however, the tax will affect all digital businesses irrespective of their effective fiscal contribution.

This tax will lead to the double taxation of such companies on both profit, through corporation tax, and turnover.

Companies running losses or generating small profit margins will, moreover, be proportionally affected to a greater extent than the more powerful groups, as income is irrelevant to the tax. Additionally, companies in the growth phase or under turnaround will be affected harshly as they will be subject to an additional tax to the detriment of their capacity for development.

The political risks inherent to a "GAFA" tax must also be given consideration. Against a background of high commercial tension, it is necessary to assess the potential consequences of such tax which would be considered protectionist. Certain Member States of the EU have, moreover, pointed out the risk of the Trump Administration responding with economic reprisals which would be difficult to contain.

By not taking account of the economic value of the transactions on which it is based, this tax will lead to a considerable increase in the global taxation of digital companies and constitute a serious impediment to their competitiveness. This tax on turnover will have cascade effects because as it stands, it is applicable to each stage of manufacturing, thereby causing one and the same activity to be de facto subject to double or triple taxation.

Lastly, as this tax is directly applicable to the turnover of these businesses, it could lead to an increase in the price of digital services and ultimately be borne by the consumer.