French President Emmanuel Macron. France is imposing a new digital tax targeting Google, Apple, Facebook and Amazon.
© 2019 Bloomberg Finance LP
France just imposed a 3% tax on the French revenues of Google, Apple, Facebook and Amazon. But these companies are not going to be any less profitable because of the tax. If Google, Apple, Facebook or Amazon sells-off because of the new French digital tax, get ready to buy.
As with all corporate taxes, there is a widespread misunderstanding as to who actually pays the tax. Since in order to stay in business, customers have to cover all of a company’s costs — including taxes — it is customers who ultimately pay the taxes.
The French estimate that the new tax will yield 500 million euros a year. That may be so, but it will not reduce these companies’ profits, they are merely the tax collectors.
This does not mean these companies will be unscathed. There will be unintended but predictable side effects.
Apple and Amazon will be easier to compete with within France at least until their competitors grow big enough to be subject to the tax. Still, I’d bet on Apple and Amazon even if their competitors have a 3% tax advantage.
No one ever bought an Apple product because it was the cheapest alternative. And, with all the shenanigans that can occur when you buy things over the internet, Amazon’s A to Z Guarantee is a good reason for the French to continue to shop on Amazon even if competitors prices are slightly lower.
In addition, the companies that compete with Amazon and Apple may not hold their prices constant. Instead, they could raise their prices by the same amount, but since they are not subject to the tax, they will just keep the money.
Since Google and Facebook get their revenue from selling ads, the new tax makes it that much harder for a French company to win an auction for ad space on either platform. In fact, in every case where a French company won the bidding for an ad slot, there was a second-place bidder not far behind.
If Google and Facebook simply refused to sell ads to French companies (so as not to trigger the tax), the second-place bidder would take the ad space at a not very much lower price. The net effect of the tax would then be to make French companies that sell products to Google and Facebook users less competitive.
France has every right to impose taxes on activity within its borders as it sees fit. But this is not going to work out as they expect. However, if enough people think the new tax is a huge setback for Google, Apple, Facebook, or Amazon, we might see the stocks fall enough to give investors a great entry point.
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