France Gears Up For “Digital Tax” That Will Harm Their Own Taxpayers

After an ill-conceived European Commission “digital tax” scheme failed, individual countries have stepped up in another attempt to wring tax money out of international companies that have helped bring prosperity across the continent. French Finance Minister Bruno Le Maire previewed a “digital services tax” whose rate could reach 5 percent on a digital company’s sales in France and claimed it is a form of “fiscal justice.”

“Digital tax” ploys are no such thing. These are attempts by politicians to wring money out of companies that have brought benefits to their own constituents while claiming the only harm will fall to the companies themselves. “Digital tax” schemes will in reality result in higher prices for French consumers, fewer job opportunities for French workers, and a radical redefinition of what the government can claim to collect as taxable revenue.

Implementing this sort of scheme would send the message to companies that it is inordinately costly to do business in France at a time when other European nations have signaled their opposition. The Europe-wide tax proposal has failed due to opposition from Ireland, Luxembourg, Sweden, Denmark and others; if France presses forward, it’s likely that other countries will reap the benefit of companies flocking to their superior business climates. 

These taxes are proposed at a time when fostering innovation is key as the digital economy continues to evolve. The “internet of things,” the nascent market for digitally-equipped consumer goods, is expected to add over $11 trillion in prosperity around the world. That France and other nations think first and foremost of taxing that prosperity should be troubling for French taxpayers.

The idea that this is some form of “fiscal justice” is also bizarre. It demonstrates stale thinking from revenue-hungry lawmakers, who have recycled this kind of paternalism through the tax code for years in an attempt to build support for spurious new taxes on highly productive businesses. In fact, digital companies are not taking advantage of loopholes; the average effective corporate tax rate on digital firms is only 0.3% off of traditional firms that are tracked. Attempting to layer on multiple percentages of higher tax rates would be distortionary and discriminatory, in addition to actually harming taxpayers in the form of fewer jobs, higher prices, and reduced opportunities to the small businesses who depend on digital services to thrive. It is a particularly curious campaign for France undertake at a time when its residents are taking to the streets to protest unfair taxation; the very people who would suffer from the economic pressure a digital tax would create.

NTU has advocated repeatedly against these ill-conceived “digital services tax” schemes that have been proposed throughout Europe and in the U.K. This French scheme is no different - strangling growth and innovation while harming prosperity for France. 

NTU is a founder of the World Taxpayers Associations, an alliance of citizen groups spanning the globe (including the UK and Europe) focused on the common aim of taxpayer protection.