Nigeria’s Withholding Tax Model Goes Global, France to Unleash on Digital Techs

Nigeria’s Withholding Tax Model Goes Global, France to Unleash on Digital Techs

France wants to tax revenue of digital tech companies since they have no access to the profits as most are shipped to tax havens: “new law expected to be passed by the French parliament today would slap a 3% levy on firms like Google and Facebook for revenue made in France”, notes Quartz. This move will affect many U.S. digital firms like Google, Facebook and Twitter; America is not happy.

US President Donald Trump has ordered an investigation into France’s planned tax on tech giants – a move that could result in retaliatory tariffs.

His trade representative said the US was “very concerned” that the tax “unfairly targets American companies”.

On Thursday the French parliament is due to approve a 3% levy on revenue made by such companies as Google and Facebook inside the country.

France argues that these firms currently exploit global tax loopholes.

Tech giants are able to locate their headquarters in low-tax countries where they declare most of their profits, thereby minimising their tax bill.

U.S. should relax: Nigeria taxes revenue through Withholding Tax (WHT) and it is a good idea. Sure, if you want to do business with government in Nigeria, the WHT is designed because government is sure you will make profit. So, it wants to take its tax before anything; you may decide not to return to pay tax. But if you end up with a loss in the business activity, good luck getting a “refund” back.

American trade officials are probing the plan, on the basis that it could unfairly target U.S. firms. Trade Representative Robert Lighthizer: “The president has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.” (Fortune newsletter)

Globally, the construct of taxing profit in the digital world makes no sense because in a sector where marginal cost tends to zero, you can practically shift profit as you want. Twitter makes money from Nigeria as our companies advertise therein but Twitter may never need an office in Nigeria to serve its Nigerian clients. The implication is that without a taxable jurisdiction in Nigeria, Twitter will not have anything to be taxed. To the taxman in Nigeria, Twitter does not exist.  Yes, Twitter tax will be $0 in Nigeria even though it makes money from Nigeria. That tax is zero because Twitter has no books for Nigeria and that means it has no profit to be taxed. Yes, Twitter profit is $0 in Nigeria for tax purposes because there is no taxable Twitter for Nigeria to tax. Add Netflix, Spotify and other digital firms to get the idea.

The French case is unique because these American companies do have offices but largely declare any profit therein. So, France struck to help its treasury with funds to keep things that make those companies to keep coming. Of course, U.S. will impose tariff on French imports and everything will normalize. I expect these contact-games going forward in the rich world. Nigeria should have its plans.

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8 thoughts on “Nigeria’s Withholding Tax Model Goes Global, France to Unleash on Digital Techs

  1. France wants to test the waters, and if successful, all the countries mauling the idea will rollout theirs; but if it backfires, they can as well shelve theirs. That of WHT we have here is quite different, because it’s applicable only in government contracts, not on privately generated revenues.

    By the time each country collects 3%-5% of generated revenues as tax from the tech giants, all their profits might have been wiped off. And then the idea of free internet or web could cease anyway. All the R&Ds and innovations happen at scale because there’s potential profit, which you can retain; but if you think people will simply work hard just for governments to take cuts, then you need to think again.

    Of course the US must complain, because most of the targeted corporations are theirs, the Europeans rarely create any digital company at scale, but they are very ‘efficient’ when it comes to taxation and regulation. Ireland is complaining too, because the current structure favours it, and now France wants to have a cut…

    As long as you are making money, you are bound to have problems with governments, because those free stuff they promise citizens must be funded, and somebody must write the cheque.

    Let’s see how it plays out.

    Reply
  2. i do really think what we have now is not fair to most countries. If they cannot recognize profit in the nation it was made, I do think it is fair to ask for 3% of revenue in YOUR LAND. That is fair.

    Reply
  3. The Humble Merchant · Edit

    It is comparable to “sales and use taxes” that local governments assess on every sale in the US. The Nigerian government should assess similar discreet axes to ensure that we close the tax revenue gap that is crippling the nation.

    Reply

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