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Google and Apple see the ghost of future taxes

GOOGLE, Amazon, Facebook and Apple - or "GAFA," as they are known in France - are easy to group together in the European imagination. They are big, they are American and they have tended to pay relatively little tax, thanks to legal loopholes and a business model that exists largely in the virtual world.

Frustrated governments have tried to use the courts and the hammer of EU regulators to squeeze more money out of the tech giants, but it has not always worked. So, rather than wait for international rules to catch up, France and a few others are embracing the tech sector equivalent of a financial transactions tax (a generic name for levies on transactions such as sales and purchases). It is a messy idea, but politically it makes the right noises.

Nothing about France's so-called "GAFA tax" will please those who favour simple and lucrative approaches to raising revenue for governments. Inspired by an EU proposal that failed to get unanimous backing from the bloc's 28-member states, Finance Minister Bruno Le Maire's proposal aims to hit companies making more than 750 million euros (S$1.2 billion) in global online revenues with what amounts to a 3 per cent tax on their gross digital sales in France.

It is hard to see how this will help much, if you judge things purely on their economic usefulness. It will hit firms equally regardless of their profitability, its cost may end up being passed on to consumers, and there is a basic difficulty in tracking and policing digital revenues in an individual country.

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The French idea seems to be that tech companies will submit their own figures, with the threat of penalties if they get the numbers wrong. Tax authorities will probably have to find new ways of gathering information to put a value on activity like digital commissions, ad sales and data collection. Even with a planned retroactive application date of Jan 1, 2019, which is itself a controversial move, France estimates that the tax will raise a measly 500 million euros - broadly the same amount brought in by the country's financial transactions tax in 2017. It is a digital drop in the ocean of France's approximately 80 billion euro deficit.

The tax has two big things going for it, though. The first is that public opinion supports it, which matters at a time when President Emmanuel Macron is clawing back popularity points from the Gilets Jaunes protest movement. And the second is that the lack of unity in the EU on this issue - with France, Italy, Spain, the UK, Austria and Belgium pushing ahead with unilateral plans - might add to pressure on the holdouts. European voters are fed up of corporate tax loopholes, and want tech firms to pay. An EU assessment found a 14 percentage point gap in the tax rate between predominantly digital businesses and bricks-and-mortar ones.

The response from Google-owning Alphabet Inc, Apple Inc, Facebook Inc and Inc, will be telling. There is a chance that they will take the hostile approach and attack these taxes in court. Lawyers might argue that the levies are discriminatory against a specific sector and maybe even tantamount to a tariff on tech companies based abroad. This approach has worked in the past - Google won a legal challenge against a 1.1 billion euro tax bill in France in 2017, after judges ruled that its headquarters in Ireland took precedence.

But the smarter option from the American giants might be to quietly lobby in favour of a harmonised EU approach that would at least offer their investors some stability within the region. Tax changes are coming whether they like it or not, with the OECD and G-20 looking at new global frameworks for digital levies. Tech firms cannot keep fighting them forever. BLOOMBERG