French Tax Authorities Nudge Amazon, Facebook To Shell Out Digital Tax: FT

Facebook, Inc FB and Amazon.com, Inc AMZN have received a demand of millions of euros from the French tax authorities, the Financial Times reports.

What Happened: France seeks to collect "digital tax" for 2020 from the U.S. technology groups.

The digital tax has been a sticking point between Washington and Europe for a long time as the U.S. calls it an unfair trade practice because it affects U.S. companies predominantly. The U.S. Trade Representative’s office is expected to slap a 25% retaliatory tariff on $1.3 billion worth of French handbags and makeup, FT reports.

A French official told FT that tech companies are the big winners of the pandemic and the country cannot wait any longer to impose taxes. The official added that big tech companies’ turnover continues to grow and they did not pay a fair share of taxes even before the pandemic.

In January, Washington and Paris had agreed to allow more time for talks on a multilateral taxation framework overseen by the Paris-based Organisation for Economic Co-operation and Development (OECD), and France agreed to stop collecting its digital tax temporarily. However, the U.S. suspended the talks with the OECD in June.

Why It Matters: Several governments have already introduced a digital tax or plan to introduce it soon. The argument is that tech companies pay low taxes on profits they make in many countries because they record the revenue in low-tax jurisdictions such as Ireland.

Cathy Schultz, vice-president for tax policy at the National Foreign Trade Council in Washington, said that if no agreement comes from the OECD process, things will run rampant and escalate into a trade war. 

France expects an E.U. proposal for digital tax by early 2021 if the OECD talks fail, but it prefers an international solution through the organization.

French Finance Minister Bruno Le Maire said in May that pandemic had made the imposition of digital tax more relevant than ever, as per Reuters.

In July, French President Emmanuel Macron said that he favors a digital tax on big tech multinationals.

The new rules around digital tax could impact, in terms of tax liability, other big tech companies like Apple Inc. AAPL, Twitter Inc TWTR and Alphabet Inc GOOG GOOG, as well.

Price Action: On Tuesday, FB shares closed higher by 3.16% at $276.92, and AMZN closed higher by 0.63% at $3,118.06.

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