France’s regulatory boomerang: when laws miss their target and hit European businesses

Chinese low-value parcels diverted through Belgium, a digital tax passed on to advertisers, textile transparency requirements imposed on every French retailer: designed to regulate the world’s largest platforms, some regulations primarily affect the European companies, infrastructure and employees that authorities can easily reach. The law of 10 July 2026 provides another example.

France wanted to slow the flow of Chinese parcels. It mainly succeeded in slowing activity at its own airports. On 1 March 2026, a €2 tax came into force for each tariff category of goods contained in parcels worth less than €150 imported into France. The measure targeted the flood of products sold by SHEIN, TEMU and ALIEXPRESS. In 2024, almost 800 million items from these platforms had been delivered in France. The government expected the tax to generate €400 million in annual revenue, partly to fund stronger customs controls. Two months later, however, the tax base had almost vanished.

On 13 May, appearing before the French National Assembly’s Finance Committee, Customs Director-General Florian Colas acknowledged that the tax was generating €2.3 million a month, compared with the expected €33.3 million. The number of daily declarations had fallen from 500,000 to 50,000. Approximately 90% of the volumes had disappeared from French statistics—but not from French letterboxes.

The Chinese platforms had neither suspended sales nor absorbed the tax. They had simply rerouted their logistics. Aircraft were now landing in Belgium or the Netherlands. Goods were cleared through customs in their country of arrival and then transported by road to consumers in France.

When the target moves the tax base

The French scheme is a textbook case. Lawmakers had taxed the national point of entry for goods intended to circulate within a European market without internal borders. Yet this point of entry is precisely what the platforms can easily control.

Avoidance therefore required neither sophisticated tax planning nor a legal battle. Changing a flight plan, a logistics contract or the address of a customs-clearance centre was enough. Because France was the only European country applying the levy, Belgium and the Netherlands automatically became more attractive.

The boomerang effect was not confined to the public finances. At VATRY airport in the Marne region, freight activity reportedly fell by 75% from March onwards. Airport director Fabrice Pauquet told France Info that redundancies were already a possibility. French airports lost freight volumes, logistics providers lost business, Customs lost declarations and the government lost the anticipated revenue, while competing hubs captured the activity. A tax intended to protect French commerce had created a competitive advantage for the logistics infrastructure of neighbouring countries.

The tax was expected to raise €400 million a year. Based on its initial results, its annualised revenue would barely have exceeded €27 million, less than 7% of the budget forecast. The initial calculation implicitly assumed that volumes would remain stable after the tax was introduced. That is precisely what did not happen.

On 1 July, four months after entering into force, the French tax was repealed. It was replaced by an EU-wide customs duty of €3 for each product category contained in parcels worth less than €150. The measure is expected to remain in force until the new European customs infrastructure is deployed. An additional €2 handling fee has also been announced across the European Union. French Customs has confirmed the repeal of the national tax, while the Council of the European Union has detailed the flat-rate €3 duty.

This time, changing airports no longer means changing customs regimes: the levy applies upon entry anywhere in the European Union.

The French government can argue that its initiative accelerated the European response. Amir Reza-Tofighi, president of the French Confederation of Small and Medium-Sized Enterprises (CPME), even believes that Europe would not have acted without this pressure. A national measure may serve as a political catalyst, but it can also prove a costly economic failure in the meantime.

The GAFAM tax confronts American power

France’s digital services tax tells another version of the same story. This time, the platform does not reroute the flow. It passes on the cost and mobilises the power of its home country.

Created in 2019, the so-called “GAFAM tax” applies to large groups generating revenue from certain digital services provided in France, including targeted advertising, intermediation between users and the sale of data for advertising purposes. Its rate is set at 3% of taxable revenue, irrespective of the profits declared in the country.

The measure responds to a genuine problem. Traditional corporate-tax rules are still largely based on physical presence and the legal location of profits. Platforms can therefore generate considerable revenue in a market without owning infrastructure there that reflects their economic weight.

The tax generates substantial revenue: receipts rose from €277 million in 2019 to €756 million in 2024. On the surface, a satisfactory result…

Its recent history nevertheless reveals the limitations of pursuing digital taxation at the national level.

GOOGLE had already passed on the bill

Diplomatic pressure is not the only lever available to platforms, a subject we will explore in a forthcoming article. Their market power also allows them to pass part of their tax burden on to customers.

GOOGLE did not wait long. Since 1 May 2021, it has passed part of the cost on to its customers. Advertisers’ invoices now include a line labelled “France regulatory operating cost”, representing 2% of spending on advertisements displayed in the country.

The surcharge applies to campaigns purchased through GOOGLE ADS and to certain advertising placements on YOUTUBE. The group explains that it is intended to cover part of the costs associated with French digital-services legislation. GOOGLE’s documentation confirms both the 2% rate and its date of introduction.

The wording is precise. GOOGLE does not claim to collect the French tax on behalf of the government. The group remains legally liable for the tax and commercially adds a surcharge to its advertisers’ invoices.

While the distinction is essential in law, it matters considerably less on a retailer’s income statement.

For €100,000 of advertising delivered in France, GOOGLE adds €2,000 in regulatory costs. VAT may then be charged on the increased amount. These fees are billed in addition to the budget set by the advertiser: a company that has allocated €100,000 to a campaign does not receive €98,000 of advertising and pay €2,000 in fees. It pays €102,000 before any other applicable taxes.

GOOGLE therefore began passing on part of the regulatory cost two years after the French tax was created. The change remained relatively discreet: the surcharge appears on billing statements without visibly altering the price displayed in the campaign-management interface.

META follows GOOGLE

META waited five years before adopting a comparable policy. Since 1 July 2026, the group has applied “location fees” to advertisements shown in six countries. These fees amount to 3% in France, Italy and Spain, 5% in Austria and Turkey, and 2% in the United Kingdom. The surcharge depends on the country in which the advertisement is viewed, rather than the advertiser’s registered office. META publishes these rates in its commercial documentation.

A €100 campaign delivered in France is now billed at €103, excluding taxes.

The two major advertising platforms therefore apply different rates to offset the same French tax: 2% at GOOGLE and 3% at META.

The risk of further cost pass-through was nevertheless real. Platforms enjoy considerable pricing power precisely because their customers have few alternatives.

These costs are not borne exclusively by French companies. A US or German business targeting the French market will also pay them. French retailers, restaurants, e-commerce companies, media outlets, startups and brands, however, naturally account for a significant share of advertisers seeking to reach consumers locally.

The tax was intended to narrow the fiscal gap between global platforms and businesses established in France. While the intention is sound, part of its cost is returning to those same businesses in the form of higher advertising prices.

When dealing with governments, US technology companies defend their market power, business models and strategic interests—even if that means passing the cost of regulation on to customers and mobilising Washington’s influence.

A law targeting SHEIN that begins by constraining French retailers

The law against ultra-fast fashion, promulgated on 8 July 2026, introduces a third mechanism. In this instance, the regulation itself extends its burden to companies that were not among its original political targets.

The legislation is intended to reduce the environmental impact of a model based on the continuous renewal of collections, the proliferation of product references, extremely low prices and little incentive to repair garments. SHEIN, TEMU and ALIEXPRESS are its implicit targets.

Among other measures, the law provides for penalties of up to €20 per product from 2030, a ban on advertising by brands classified as ultra-fast fashion and awareness messages on the platforms concerned.

Article 2, however, goes beyond this scope. Since 10 July 2026, it has required the “manufacturing locations” of new clothing, footwear, household linen and other textile products sold online to be displayed on the digital platform, close to the price and in characters of the same size. The requirement is not limited to ultra-fast-fashion companies, and the legislation sets no revenue or sales-volume threshold.

While the new law refers only to “manufacturing locations” without defining the stages concerned, the previous AGEC framework distinguishes, for clothing, between the countries where weaving, dyeing, printing and garment assembly take place. For footwear, it distinguishes between stitching, assembly and finishing. This issue has fuelled parliamentary debate, with lawmakers calling for the two frameworks to be aligned.

Ultimately, while the obligation fits into a single sentence on paper, within a company it becomes an IT and organisational project to be added to already demanding production schedules.

Businesses must create new fields in their product databases, modify information-management systems, adapt supplier APIs, update existing product pages, redesign mobile interfaces, handle missing data and document its reliability. A major retailer may have to process several hundred thousand product references. A small retailer has neither the same legal resources nor the same IT budget.

The AGEC law already required the disclosure of several pieces of information relating to the origin and traceability of textiles. The new provision mainly imposes a particular location and size for displaying that information. Its value will therefore depend on consumers’ ability to use it. The cost to retailers, by contrast, is immediate.

Asymmetric enforcement across Europe

The European dimension is particularly sensitive because the country-of-origin principle under EU e-commerce law may limit the application of certain national obligations to services established in another Member State. The European Commission had already expressed reservations about the French legislation.

Several articles of the law explicitly acknowledge this difficulty and establish a specific procedure before certain provisions can be applied to operators based elsewhere in the European Union.

It would be excessive to claim that SHEIN or TEMU automatically escape the legislation in its entirety. The law notably requires certain foreign producers subject to extended producer responsibility to appoint a representative in France and seeks to cover online marketplaces.

The operational asymmetry nevertheless remains. The obligation is clear, immediate and easily enforceable against a company established in France, whereas its enforceability against certain services operating from another European country may be more complex.

The more transparent, locally established and accessible to the authorities a company is, the easier it becomes to regulate.

Three rules, three forms of displacement

These three examples do not reflect the same type of failure.

The low-value parcel tax displaced trade flows. The digital tax shifted part of the cost and triggered a geopolitical threat against other industries. The fast-fashion law extends the obligation to every retailer, including those that do not control the required information.

They nevertheless rest on the same mistaken assumption: that the targeted company will remain stationary.

Tax-revenue forecasts are often calculated on the basis of constant volumes. Compliance assessments assume that companies will simply implement the new rule. Legal evaluations treat the inclusion of an obligation in legislation as equivalent to its effective enforcement.

Major platforms behave differently. They change their logistics, pricing, contracts and organisation, as well as their litigation strategies. They employ tax specialists, customs experts, European legal teams and political intermediaries. This allows them to absorb a constraint temporarily, circumvent it or, where appropriate, turn it into an additional line on their customers’ invoices.

What can move will move; what cannot move will pay. The asymmetry therefore does not merely separate European companies from foreign groups. It divides mobile actors from territorially anchored assets.

Compliance can strengthen dominant players

Regulations often pursue a competitive objective. They seek to constrain dominant platforms in order to protect local companies or restore a level playing field. Counterintuitively, however, they may consolidate the very positions they were intended to challenge.

A major platform spreads its compliance costs across billions of users. It builds a common legal and technical infrastructure for several markets and can then transform that infrastructure into a competitive advantage.

A startup or SME, by contrast, bears the same type of cost over a much narrower base. Every new register, audit, data field or procedure consumes a significant share of its resources. A legal exemption is therefore not always enough to protect smaller businesses.

The regulation then becomes a barrier to entry, requiring challengers to finance compliance infrastructure that market leaders already possess—or have transformed to their advantage. The GDPR provided a striking example of this phenomenon.

Good intentions are not enough

Reducing the textile industry’s environmental impact is legitimate. Requiring digital platforms to contribute to the public finances of the countries in which they operate is equally legitimate. Ending the customs advantage enjoyed by imported low-value parcels addresses an obvious distortion.

The criticism concerns not these objectives, but the choice of scale, tax base, liable party and, often, timing.

Public policy cannot be assessed solely by its intentions or gross revenue. It must account for the cost of avoidance, losses of economic activity, cost pass-through to customers, the effects on SMEs and the advantages handed to foreign competitors.

The failure of France’s parcel tax could have been anticipated by asking a simple question: can platforms route their goods through another European country?

The surcharges imposed by GOOGLE and META called for another question: can a dominant company pass the cost of a tax on to its customers?

The textile requirement raises a third: does the retailer responsible for displaying the information actually possess it?

In each of these three cases, the answer was predictable.

Seven tests before the next law

Economic regulation should therefore begin with a mobility test. Can the targeted company move its trade flow, billing, headquarters, contract or point of entry?

It should then assess the measure’s true incidence. After prices have adjusted, who will pay: the platform, retailer, advertiser, supplier or consumer?

The third test concerns geography. Can a national rule operate within an integrated European market, or will it create an advantage for a neighbouring country?

The fourth concerns information. Does the legally responsible company possess the requested data, and can it verify its quality?

The fifth measures relative cost. Does the same obligation represent 0.01% of a large group’s revenue but several percentage points of an SME’s margin?

The sixth concerns enforcement. Do the authorities possess the staff, data and procedures required to scrutinise foreign operators as rigorously as domestic companies?

The final test requires a review clause. A tax or obligation should be capable of rapid adjustment if volumes move, revenue collapses or its costs exceed the expected benefits.

Europe does not lack rules. What it still too often lacks are dynamic simulations showing how companies will respond to them.

Platforms operate at the scale of a market, logistics network and global value chain, while public authorities sometimes continue to think in terms of an administrative border, a legislative amendment or a budget line.

Regulation that primarily penalises those who comply with it does not correct the balance of power. On the contrary, it strengthens that imbalance in favour of the very companies it was intended to constrain.