In a context of tax competition in Europe, the Internet giants are taking advantage of this situation to pay the least taxes on significant revenues. At European level, there is currently no effective solution. Legally, tax decisions are sovereign. The implementation of a GAFA tax (Google, Amazon, Facebook, Apple) is the subject of much opposition from some member. Some such as Germany are afraid of trade retaliation from the US. Others such as Luxembourg and Ireland have -at least partly- based their economic policies on the tax attractiveness of their territory. Hence, harmonising corporate tax in Europe is not an easy task, especially when it has been falling steadily since the 2000s (see chart).
Average corporate tax rate in Europe since 2008
There is a mark decrease due to fiscal competition
Possibly as a way to press for an EU-wide coordinated outcome, and pending other OECD initiatives for a consistent tax base globally, France has drafted a law for a tax on digital advertising and intermediation services. This tax would apply to companies with a turnover of more than €750 million worldwide and more than €25 million in France, i.e. 27 companies in all (including GAFAs). This 3% levy could bring in more than 400 million euros per year.
Is this unilateral decision the solution to the insufficient levy on corporates in Europe? While it could generate fiscal revenues, it may also entail higher prices for those services, and be a burden for consumers. This project is supported solely by France and thus has only a small impact at the European level. At the end of the day, it does not conclude on the real subject: how can we allow corporate (and other) tax cooperation in Europe?
Dylan Alezra, Macro Analyst
Sources: Beyond Ratings, European Commission, OECD