Amazon will increase fees for vendors selling on Amazon.fr by 3 percent in response to France’s digital services tax, fulfilling economists’ predictions that affected companies would pass on the tax to other businesses and consumers.
The tech giant on August 1 posted an update on its Amazon Seller Central website notifying sellers of the change, which takes effect October 1. “Following the creation of a 3 percent digital services tax in France, we would like to inform you that we will have to adjust our referral fee rates on Amazon.fr to reflect this additional cost,” the company told sellers. Notices were also emailed August 1.
All sellers pay a percentage-based referral fee on each item they sell, and those fees vary by category. Amazon deducts the relevant referral fee percentage based on total sales price, including VAT. The total sales price is the amount a buyer pays for a product, including price, delivery, and gift-wrapping charges, according to the site.
Amazon gave some examples for sellers to illustrate the change. “For example, on an item for which the referral fee is currently 15 percent, you will pay a fee of 15.45 percent from October 1, 2019,” the company explained.
The company said it was forced to increase seller fees after France gazetted the controversial tax July 25. “Economists have warned for months that this turnover tax would be passed on by impacted companies, and we made it clear to lawmakers that this would have to be the case with Amazon,” the company said in a statement emailed to Tax Notes.
Amazon could not take on an extra consumption tax based on revenues instead of profits because of the nature of a “highly competitive and low-margin retail industry” and because of its significant investments in tools and services for “selling partners” and customers, the statement added.
“This tax is aimed squarely at the marketplace services we provide to businesses, so we had no choice but to pass it down to selling partners,” Amazon said. “We recognize that this may place small firms in France at a competitive disadvantage to their counterparts in other countries, and we and many others warned lawmakers this would happen.”
“Unfortunately, we expect that many of these businesses may in turn be forced to pass on this tax to consumers, which will result in higher prices for their products that are sold online through our store and elsewhere,” the statement continued.
An Amazon France spokeswoman confirmed that the seller fee change will apply to all vendors who sell on Amazon.fr, regardless of where they are based.
France’s DST, frequently referred to in Europe as a tax on GAFA companies — Google, Apple, Facebook, Amazon — will apply retroactively from January 1 to turnover from online advertising, the sale of data for advertising purposes, and fees derived from linking users to online sales platforms. Companies with €750 million in global digital sales and more than €25 million in sales in France will fall under its scope, and will be required to make an estimated tax payment by October 31 based on 2018 revenues.
The DST is meant to be a temporary measure until OECD-led discussions on an internationally agreed approach to adapt international rules to tax the digital economy produce results by the end of 2020. Other countries, including the United Kingdom, are moving to introduce a DST. When asked whether Amazon plans on increasing fees if the U.K. DST takes effect, the Amazon France spokeswoman declined to elaborate. “We never comment on our future plans,” she said.
Amazon’s decision to pass on the DST to small and medium-size enterprises that use its services belongs to the company alone and is in no way enshrined in the law that created the tax, the French Ministry of Economy and Finance said in a statement sent to Tax Notes. The DST responds to the question of fiscal justice because digital giants pay far less tax than other companies, according to the ministry.
The French government remains attentive to the balance of business relations between major digital platforms and the SMEs that use their services, the ministry said. To that end, Mounir Mahjoubi, secretary of state for digital affairs, recently proposed a code of good conduct under which those platforms commit to be more transparent with their third-party sellers, including French SMEs and micro-enterprises, according to the ministry. Most digital platforms have signed the e-commerce charter, but Amazon refused to sign it, the ministry added.
France’s DST has drawn particularly harsh criticism from the United States, which views the tax — and others like it — as being discriminatory against U.S. tech companies. On July 10 U.S. Trade Representative Robert Lighthizer announced a section 301 investigation into the DST, which could lead to new tariffs and other punitive measures.
Transatlantic trade tensions reached a fever pitch July 26 when President Trump vowed to take “substantial reciprocal action” against France, hinting at potential taxes or tariffs on French wine and railing against French President Emmanuel Macron’s “foolishness.” French Agriculture Minister Didier Guillaume had harsher words for Trump’s threats, telling BFMTV July 30 that Trump’s reasoning was “completely stupid” and that his criticism of Macron was unacceptable.
French Finance Minister Bruno Le Maire has repeatedly said the DST does not target U.S. companies, noting July 27 that the tax will fall on European and Chinese companies as well. He called on the U.S. and other G-7 countries to continue working to reach agreement on a long-term solution regarding the digital economy at the G-7 leaders’ summit, set for August 24-26.
Le Maire and Treasury Secretary Steven Mnuchin remain in close contact as discussions continue in the coming weeks at the G-20 and OECD levels to implement the G-7 finance ministers’ agreement in principle on the taxation of the digital economy, which they brokered during their July 17-18 meeting in Chantilly, the ministry said.
Told You So
News of Amazon’s seller fee increase didn't surprise Giuseppe de Martino, president of L’Association des Services Internet Communautaires (ASIC), which represents tech companies including Google, Yahoo, Airbnb, Amazon, eBay, Facebook, Microsoft, and Twitter. ASIC had predicted that companies would react the way Amazon has, de Martino told Tax Notes, adding that end-users always wind up paying when there is a tax on companies.
ASIC intends to approach the European Commission about the state aid aspects of France’s DST. However, under the DST law, if the government does not notify the commission for a preliminary ruling on whether the DST would raise state aid concerns, it then has three months to submit a report to the French Parliament about why it did not act. Therefore, ASIC will wait until the report is filed or the deadline passes, de Martino said.
Matthias Bauer, senior economist at the European Centre for International Political Economy in Brussels, said it’s likely that other companies will follow Amazon’s lead.
“After all this, the French DST is just another cost for these companies, and it is easy to pass it on to [business-to-business] consumers, who in turn are likely to pass it on to final consumers, depending on firm-level characteristics and the level of competition,” Bauer said. That response is often what economists observe with other businesses, and in some cases, companies overshoot in reaction to sales or excise taxes, he added.
“Many studies warned that this will happen, but French policymakers followed their own agenda,” Bauer said.
Lawmakers can legislate who owes a tax legally, but ultimately, the tax burden might land on someone else, according to Daniel Bunn, director of global projects at the Tax Foundation. “Whether or not other platforms follow suit in the same way, the incidence of the tax likely won't be fully borne by the large companies that the French tax is targeting,” he said.
Scott A. Hodge, president of the Tax Foundation, said he wasn’t surprised that platform companies will pass on DST costs to customers, advertisers, and users.
“French politicians have tried to sell this to their populists as a tax on big, rich U.S. companies, but our economists have warned them that French citizens will be the ultimate losers,” Hodge said. “It is still an open question whether that will resonate with lawmakers in countries such as Spain or Italy because the DST debate is about politics and optics, not economics.”