France demands that a new digital tax on tech giants should come this year

  • The French government has pushed for a new levy on internet giants, such as Google, Apple, Facebook and Amazon, in order to make these firms pay what they see as a fairer tax rate in the region.
  • This measure is likely to get some sympathy among voters ahead of next spring's European elections.
  • However, some technical differences among European countries have not allowed substantial progress on this front.
  • Critics of the new tax say that it could stifle innovation.

France will not rest until its plan for an EU-wide digital tax gets approved before the end of the year, the country's finance minister said Tuesday.

The French government has pushed for a new levy on internet giants, such as Google, Apple, Facebook and Amazon, in order to make these firms pay what they see as a fairer tax rate in the region. This measure is likely to get some sympathy among voters ahead of next spring's European elections. However, some technical differences among European countries have not allowed substantial progress on this front. Critics of the new tax also say that it could stifle innovation.

"We want the adoption of the directive on digital taxation by the end of this year. This is a clear red line for the French government," Bruno Le Maire, France's finance minister told reporters in Brussels as he prepared to discuss the issue with his European counterparts.

"We are aware there are some technical issues and technical concerns, but these are technical concerns not political problems, so we still have three or four weeks before the next Ecofin (a regular meeting between EU finance ministers) to fix those technical issues," Le Maire said.

"And I will spend day and night with my German friends to find a compromise and to find a solution on those technical issues. But nobody could take advantage of those technical difficulties to avoid its political responsibility," the French lawmaker added.

'Fairness and efficiency'

There are different concerns across Europe regarding a new tax on the digital giants. Some member states believe that such a tax would be harmful for smaller countries, or potentially hurt some traditional industries. Both Ireland and the Netherlands believe the EU should wait for an international approach to avoid looking "anti-business."

"For the sake of fairness and efficiency, nobody can understand anymore that you have a level of taxation for European companies (that is) 14 points above the level of taxation of the internet giants," Le Maire added.

The French politician added that it would be a "political failure" to wait any longer. Any delay could increase the risk of individual countries that are in favor of the tax — including the U.K. and Spain — going ahead with a new levy and creating a disproportionate tax rate across the region, La Maire added.

Despite France's tough stance, EU finance ministers gathered in Brussels didn't manage to reach an agreement on the tax. According to the Financial Times, the ministers abandoned the idea that an agreement could be reached next month. Countries such as Denmark, Sweden and Ireland highlighting that it would hit their competitiveness.

Meanwhile, Vera Jourova, the EU's justice commissioner, told CNBC's Karen Tso at the Web Summit in Lisbon Tuesday that there is a "very strong" determination in Europe to move ahead with the so-called digital tax. She explained that it was fair that if the digital industry is making money by using the private data of Europeans, then part of that money should stay in Europe.

She suggested that "this money should be reused for media literacy and better, or stronger, resilience of the society against the possible risks which come from the digital era and digital sphere."

What is the EU's tax plan?

According to data from the European Commission, digital companies pay on average an effective tax rate of 9.5 percent — compared to 23.2 percent for traditional businesses. The EU proposals include a "common EU solution" which would allow member states to tax profits that are generated in their territory, even if these companies do not have a physical presence there.

But, a company would have to fulfill one of the following criteria: its annual revenues in a European country exceeds a 7 million euro ($8.6 million) threshold; it has more than 100,000 users in a taxable year; or over 3,000 business contracts for digital services are created between the company and its users in a taxable year.

However, and perhaps more importantly, the plans from the European Commission also include an interim tax measure. This would mean that those activities which are not currently taxed would begin to generate immediate revenues for EU member states. This aims to stop countries taking unilateral actions, creating distortions in the European market, until the long-term solution is applied.

—CNBC's Ryan Browne contributed to this report.