France’s GAFA Internet Tax Won’t Work – As Effective As Inspector Clouseau

France has decided to impose a new tax on the big internet companies and it’s not going to work, it’s going to be about as effective as Inspector Clouseau was. But then there is a reason that that character was created French after all. The aim is to tax the big internet companies. Google, Apple, Facebook, Amazon – thus the acronym GAFA – do lots of business in Europe but pay very little tax here. This rather annoys those who get to spend the tax revenues, the politicians, so they wish to do something about it. Like, invent a new tax and so tax those who righteously, justly and correctly, don’t pay much tax under the current plethora of taxes.

This is of course ludicrous, what we should be worrying about is how much value do the companies add to the lives of the citizenry, not how much they’re paying into state coffers to pay for the French President’s mistress*.

However, there’s a problem here – it’s not going to work, it’ll be about as effective as that top French cop, Inspector Clouseau. Hmm, perhaps qualify that just a little, it’ll work in the sense that the French people will think that Macron is doing something but other than that it’ll not work. Because it’s not addressing the basic problem that exists.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Tech giants will now pay more tax in France, after the country decided not to wait for the rest of the EU to introduce the measure. The so-called GAFA tax targeting major digital firms comes into force on January 1.
The French government hopes to raise €500 million ($572 million) with levies specifically aimed at multinational tech firms, including Google, Apple, Facebook, and Amazon, Finance Minister Bruno Le Maire said, announcing the move in December.[/perfectpullquote]

Well, no, not really. The UK tried with the Diverted Profits Tax – less formally the Google tax – which didn’t work either and for the same reason.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] The EU has been discussing plans for a three-percent tax on the revenues of large internet companies that make money from user data or digital advertising. However, the last round of talks on the matter in November resulted in no significant progress, apparently pushing France to move forward with it alone. Separately, France and Germany reached a consensus on a three-percent levy on digital ads after Paris agreed to water down its initial proposals on a broader tax on data. [/perfectpullquote]

As the companies don’t sell data a tax on data was never going to work as there are no revenues to tax. But here’s the problem.

The definition of revenue from ads will be ads that are sold in France. But under EU law ads which are sold in France are ads which are sold by a French company in France. Ads sold by an Irish company to a buyer in France are not sales which take place in France. That’s all part of the Single Market stuff. You make sales and those sales take place in the taxing jurisdiction where you, the seller, are. Which for most of the GAFAs is either Ireland or Luxembourg. So, most advertising which is sold to people in France is thus not covered by the GAFA tax because the sales aren’t taking place in the French taxing jurisdiction.

This is before we get to the point that such a revenue tax isn’t paid in the end by the seller anyway, even if successfully collected the incidence will be upon the buyer – prices of advertising in France will be around and about, ooooh, 3% higher than they are in other EU countries.

France’s GAFA tax just isn’t going to work other than in the sense of keeping les paysans from continuing to riot in the streets. And maybe not even that.

* Not that the current one seems to have such but past holders of the office have more than made up for the odd individual who maintains his own marriage vows.