French lawmakers have approved a 3 percent tax on digital companies that make large profits in the country. The tax will be applied to revenue from digital services earned in France by companies that make more than 750 million euros ($844 million) in global revenue and 25 million euros ($28 million) in French revenue. The tax will be applied retroactively from January 2019 and will hit the French revenues of about 30 major companies.
Digital companies have been able to avoid taxes by establishing their European headquarters in countries that offer corporations low tax rates, like Ireland and the Netherlands. According to data from the European Commission, digital businesses currently pay an effective tax rate of 9.5 percent, on average, in the European Union. For comparison, most other types of companies pay an average effective tax rate of 23.2 percent.
Officials in France defended the tax as well within its rights. French Economy and Finance Minister Bruno Le Maire said in a statement, “France is a sovereign state, it decides sovereignly its fiscal arrangements, and it will continue to make fiscal decisions sovereignly.” Austria, Italy, Spain, Poland, the Czech Republic, and the U.K. are reportedly considering passing similar tax laws.
The EU has been considering imposing a tax on large digital companies, but progress on the matter has stalled repeatedly. The Organization for Economic Development (OECD) has said it won’t reach a decision on a tax on digital companies until 2020. France says it will roll back its tax if an EU tax takes effect.
U.S. President Donald Trump has ordered a probe of the French tax, saying that it unfairly targets American companies. Most of the companies expected to be subject to the tax are from the U.S., with few European and Asian companies on the list. U.S. Trade Representative Robert Lighthizer said in a statement, “The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.” The investigation could result in the U.S. imposing tariffs or trade restrictions on French goods.