Taxing the tech giants | France’s GAFA tax may be replicated in other countries soon

Taxing the tech giants | France’s GAFA tax may be replicated in other countries soon

"The big digital players are not contributing to the common good_ _ _ I don’t agree with this system, I don’t think it’s a good one, including for American workers.” - President Macron

What is GAFA?

The French parliament in July this year passed a legislation to tax tech firms that operate in France. The levy has become known as the GAFA tax, named after Google, Amazon, Facebook and Apple. GAFA is a 3% levy on revenues of tech firms in France.

The tech giants are certainly not amused by this levy and they apprehend that this would encourage other countries to impose similar levy. Some countries like India have already levied a tax on digital transactions but these are in the form of tax withholding. The tech giants conveniently pass on the incidence of such tax on the user. Donald Trump tried to fend off this levy by threatening to levy tax on French wine that is imported into the US. However, based on his discussions with the French President on the side lines of the G7 meet, GAFA would be enforced and any extra tax that the French Government would collected over an internationally accepted rate to be declared in future, would be refunded to the tech giants in later years.

No international consensus:

Before levying GAFA, French president Macron had attempted to lead efforts to pass an international tax on digital companies. However, the slow progress put him off. OECD should come out with a standard on taxing digital transactions at the earliest and prescribe a tax rate.

Should tech giants pay tax in the country where their services are used?

The very essence of the GAFA tax is on the principle of territorial taxation. It is based on the theory that where a non-resident derives income in another country through certain activities carried out therein, the source country has a right to tax such transaction since the income is generated there.

Tech giants should not be complaining

Since all Governments across the world are grappling with recessionary economies, trade war and lack of buoyancy in tax collections, it is but natural that they will pluck this low hanging fruit to improve their fiscal position. Ideally, the US tech giants should not worry much since the tax that they pay would be allowed as tax credit in the home country (US). However, most of the tech giants end up paying no tax whatsoever or paying at a very low rate (on account of their location in tax heavens). They worry that the taxes paid in the source country would become an additional cost. However, it seems that the GAFA is bound to stay and more countries will adopt it to tax digital transactions. 

Ayan Dutta

Senior Manager | RTR GPO | Finance & Accounting | Consolidation | Transition | Solutioning | Multi Pole Team Handling | Transparency Reporting | Transformation & Automation

5 年

Sir do you foresee any impact on ITES sector?

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