The yellow shirt revolution in France is hastening the day when the US technology giants, led by Google, will have to pay full tax in each country where they operate.
And not before time because, as I pointed out this week, these companies are set to enter a new wave of profitability on the back of being able to apply artificial intelligence to their massive data bases to create a new services and products.
The French were enraged that Google, Amazon, Facebook and Apple pay (in the words of French finance minister Bruno Le Maire) less tax than a cheese producer in Quercy.
These companies have large French turnovers and taxing them was a yellow shirt demand which the government has responded to with a 3 per cent tax on the turnover of the giants. The legislation has passed the French parliament and all that is required is approval from French President Emmanuel Macron. He has indicated he will give that approval.
Not surprisingly the US is threatening yet more trade sanctions (it’s an overused weapon) but the UK has in the pipeline a two per cent turnover tax and many other European countries plus New Zealand are looking at similar plans.
No-one can afford to have such a huge part of their economy untaxed.
Given what is happening globally, Australia does not have to move to the front line.
But like most other non-US countries we are struggling to get the giants to pay tax so if the French move gains momentum and the Australian Taxation Office’s legitimate efforts to change the game are unsuccessful, then we may follow with a turnover tax.
Turnover taxes are grossly unfair to companies that do not make profits. But the US tech giants ship their local profits to low-tax havens, often by paying vast sums for their proprietary knowledge.
The technology revolution has enabled these companies to dominate the world.
Last night the Dow index of US shares passed through 27,000. And guess which company drove the rise? It was Microsoft, with a whopping 53 per cent rise since early 2018 when the Dow hit 26,000.
At the start of 2019 Microsoft sent $US13.8 billion back to the US as part of the Trump tax laws. This is money that was almost certainly part of global tax minimisation.
France’s 3 per cent turnover tax will apply to companies that generate worldwide revenues on their digital services of at least 750 million euros ($US845 million), with 25 million euros ($US28 million) from within France.
They apply to the French revenues of roughly 30 major companies, mostly from the US.
Le Maire says the tax would raise up to 500 million euros ($US565 million) per year.
France is moving ahead of the G20 finance ministers who last month broadly supported a plan developed by the Organisation for Economic co-operation and Development to overhaul global corporate tax rules and address challenges in taxing digital companies. Those rules will not be announced until 2020 and implemented “who knows when”.
The yellow shirt pressure is such that France can’t wait for the OECD.
The Americans say the French tax is clumsy and they are probably right, but it can be fixed later.
In Australia we do not have yellow shirts, but I detect a great deal of community disquiet over the fact that too many US tech giants are not paying fair tax Down Under.
The great risk to the large corporate community is that to avoid allegations of discrimination against the US, any turnover tax may need to be imposed on all large companies.
Meanwhile if the French actually stand up to the US then they will not be alone.
I don’t think they have a choice but to press on with their tax.
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