The corporate tax system is increasingly unfit for purpose in the digital era. The fact that companies can structure themselves so that they pay much of their tax in low-tax jurisdictions, regardless of where sales take place, is a particular problem. France’s digital services tax, which the French upper house passed on Thursday, aims to change that. It will impose a levy on turnover for the largest digital companies operating in the country.
The French plan will apply a 3 per cent charge on turnover to companies with revenues of more than €750m globally and €25m in France. The model and levy are the same as those in a draft EU digital services tax which — unfortunately — collapsed in December amid opposition from Germany and the Nordic countries. The UK chose Thursday to publish its own draft legislation for a 2 per cent digital sales tax, first flagged last October, from April 2020 if no international agreement on the issue is reached before then. Spain is doing something similar.
It is regrettable that France, Britain, and others are having to take unilateral steps when co-ordinated multilateral action would be preferable. But the failure, so far, of the global community to reach a satisfactory accord leaves them with little choice. The French and British moves should inject new urgency into the debate within the G7 large advanced economies — due to be renewed at a meeting next week — over whether to endorse OECD proposals for a digital services tax.