We previously reported on a controversial digital services tax (also known as the GAFA tax) which was implemented in France towards the end of 2019, which levies a 3 per cent tax on digital services gross revenue (as opposed to profits) made in France by companies with total worldwide revenues of more than €750 million – of which at least €25 million is generated in France. The aim is to close the tax loopholes which effectively allow large technology firms to avoid paying tax by basing their regional headquarters in tax havens.

Around the same time, the Organisation for Economic Co-operation and Development (OECD) announced proposals to introduce a similar taxation scheme which would cover all highly profitable multinationals – not just digital services companies – on a global scale. The aim is essentially the same as with the French GAFA tax – to ensure that large corporations “pay tax wherever they have significant consumer-facing activities and generate their profits.” Although it wasn’t billed as a plan to specifically target digital companies, in practice this would hit the tech giants which inspired the name “GAFA tax” (Google, Apple, Facebook, Amazon) particularly hard.

Speaking at the time the proposals were published, OECD Secretary-General Angel Gurría said that: “We’re making real progress to address the tax challenges arising from digitalisation of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020.” He also issued a stark warning: “Failure to reach agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy.”

Since then, the UK has introduced its own digital services tax which will be applicable to any revenue earned from 1st April 2020 (although the relevant legislation, The Finance Bill 2020, has not yet been enacted). This places “a new 2% tax on the revenues of search engines, social media services and online marketplaces which derive value from UK users.” 

In the wake of America launching a formal investigation of GAFA taxes, Mr Gurría has renewed his warning of the consequences of failure to reach a multilateral deal on taxation, saying that “you will have another trade war, except this time only not just between France and the US, which almost happened and we managed to avoid, but … with dozens and dozens of countries.”

Image from pxfuel.