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France to levy digital tax despite US decision to walk out of talks

  • Category
    Economy
  • Published
    25th Jun, 2020

In a latest development, France has decided to go ahead with plans to tax big digital companies this year and criticized the United States' decision to walk away from talks on the issue as a 'provocation'

Context

In a latest development, France has decided to go ahead with plans to tax big digital companies this year and criticized the United States' decision to walk away from talks on the issue as a 'provocation'

About

  • The French government’s “GAFA” tax” named after Google, Apple, Facebook, Amazon, is being introduced to combat attempts by the firms to avoid paying what is considered a “fair share” of taxes in the country.
  • The purpose of this tax is to achieve a fairer and more efficient tax system, which taxes value where it exists, i.e. in the data, in order to finance public services, schools, nurseries and hospitals.
  • It is a proposed digital tax to be levied on large technology and internet companies. France has decided to introduce the tax (3% tax on revenues from digital activities).
  • France, Britain, Italy and Spain have already sent a reply expressing their desire to agree on “a fair digital tax at the level of the OECD as quickly as possible.

US’s stand

  • In January this year, 137 countries, including India, agreed to negotiate tax on tech firms but since tech gains during lockdown, US has backtracked.
  • The United States has regularly accused the French plan--called the Gafa tax--of unfairly targeting American firms such as Google, Apple, Facebook and Amazon.

How strong is GAFA?

  • The four tech giants Google, Amazon, Facebook, and Apple have transformed the media industry, the internet, business models, and society.
  • They capture an ever-growing portion of consumer’s spending by shifting consumers away from traditional brick-and-mortar businesses and even displacing them.
  • On one hand, Google and Facebook led the digital and display market while Amazon and Apple dominated online retailing.
  • Despite their seeming differences, all four have similar capabilities such as-
    • Search
    • Social
    • Retail
    • Advertising
  • In this race, Google is slightly better positioned than othersdue to its search-engine and display advertising.
  • Facebook comes in second with strong profit margins but provides a ‘fashionable’ core entertaining business which is more vulnerable to market changes and newcomers.
  • Apple and Amazon remain strong in their segments but facing increasing challenges.

Digital Taxation in India

  • India has the second-largest online users in the world. Thus, from the viewpoint of its tax revenue base, digital businesses cannot be ignored.
  • In a recent development, two significant amendments were introduced in Indian taxation laws to properly tax the value created digitally.
  • Equalization Levy- Equalization Levy is a tax aimed at foreign digital companies. It has been in place since 2016 and levied a 6% tax payable on gross revenues from online advertising services.
    • The new amendment, effective from April 1, 2020, essentially expands the its scope from online advertising to nearly all online commerce activities done in India by businesses that do not have taxable presence in India through applicability of 2% on its revenues.
  • India also introduced the concept of “Significant Economic Presence” (SEP) for the purposes of corporate income tax, which expanded to include the following:
    • Advertisement which targets a customer residing in India or who accesses advertisement through internet protocol (IP) address located in India.
    • Sale of data collected from a person residing in India or who uses an IP address located in India.
    • Sale of goods/services using data collected from a person residing in India or who uses IP address located in India.
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