France is moving ahead with its plan to implement a controversial digital tax on big tech companies, sending out notices to various companies today informing them they’ll be required to pay up if they want to continue doing business there.

The tax is being championed by the French Economy Minister Bruno Le Maire, who argues that big tech companies aren’t being taxed properly by European nations.

The problem is that big tech firms, which include Amazon.com Inc., Apple Inc., Facebook Inc., Google LLC and Microsoft Corp., take advantage of a loophole in European Union law. The loophole means they can generate lots of revenue in various European countries and report that to tax authorities in just one country, such as Ireland, which has a lower corporate tax policy. That means they end up paying far fewer in taxes than they would if they were to report in the country where the revenue is generated.

Le Maire originally pushed for a Europe-wide tax on big tech companies based on their local revenue. The idea has been discussed by the Organisation for Economic Co-operation and Development for some years but has failed to get enough support from other countries. The problem is that European tax policies need unanimous agreement from all EU members to be implemented.

Negotiations between European governments are still ongoing, but France has decided not to wait and has gone ahead and created its own local tax on tech firms, the Financial Times reported today. The tax only applies to those companies that operate a marketplace, which accounts for Apple, Amazon and Uber Technologies Inc., or an advertising business, such as Facebook and Google. They also must generate at least €750 million in revenue globally, with €25 million of that generated within France itself.

Although many people in France, and indeed in Europe, support the tax, U.S. authorities have been less welcoming. One of the of the most vocal opponents is outgoing U.S. President Donald Trump, and he has repeatedly promised to retaliate if France goes ahead with the move.

French President Emmanuel Macron (pictured) had previously agreed with Trump in August 2019 that his country would scrap the tax as soon as the OECD agrees on a way to tax big tech firms fairly in Europe. But in December of that year, Trump suddenly decided that deal wasn’t good enough and threatened to impose tariffs on French wine, cheese and handbags by way of retaliation. Then in January 2020 the two sides decided to take a step back to give the OECD more time to create a proper tax framework.

Now, perhaps inspired by the recent U.S. election results, the French government has declared that the OECD negotiations have failed, and that it will now start its own digital tax. It remains to be seen if Trump, or the incoming Joe Biden administration, will respond.

The imposition of the tax was not a surprise, but it could lead to some unforeseen consequences for France later on, said Constellation Research Inc. analyst Holger Mueller.

“One of the basic effects of taxation is that you end up seeing less economic activity of whatever it is you are taxing,” Mueller said, citing the effects of increased taxes on cigarettes and carbon emissions in numerous countries.

“Europe certainly doesn’t want less digital transformation and progress, but treating digital enterprises differently creates a two-tier system that could lead to some unintended consequences,” he added. “So it could be that France ends up hurting its own competitiveness.”

For now, most of the big tech firms concerned have decided to play nicely with France. Facebook told Reuters that it has received the tax notice and will “ensure compliance” with it. Meanwhile, spokesperson at Amazon said that it will also comply, the Financial Times reported.

Photo: Samaël Hillél Ben Sháhar/Flickr