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 3%, 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.
Credit: Source link