The French digital services tax legislation was signed by President Macron on 24 July 2019 and published in the official gazette on 25 July 2019.
As enacted, the French digital services tax retroactively applies to digital services revenue as of 1 January 2019.
The legislation providing for a digital services tax was passed on 11 July 2019 by the Senate of the French Parliament. Almost immediately, there were discussions between France and the United States about this tax, and the United States subsequently announced a trade-related investigation of the digital services tax.
At the meeting of the “Group of 7” (G7) in France, 17-18 July 2019, the French Minister of Finance, Bruno Le Maire, called for an acceleration of the negotiations at the OECD level on the taxation of “tech giants,” and said France will only withdraw its digital services tax if and when a credible decision is made at the OECD level (considered a possibility as early as late 2020).
According to the French government, there has been a mismatch between the location (and manner) of taxing profits resulting from certain digital activities and when and how the corresponding value is effectively generated.
Tech companies allegedly have realized benefits from an undue advantage because the design of France’s territorial tax system has not taken into account the manner in which tech companies create value. Rather, the tax system has focused more on the taxation of “traditional” companies (that is, those with brick and mortar operations).
The digital services tax is imposed at a rate of 3% on the gross revenues derived from digital activities of which French “users” are deemed to play a major role in value creation. The law not only affects digital companies but, more generally, digital business models.
The French digital services tax will be levied on two types of digital services (only):
For each of these two types of services, a specific set of rules applies (notably territoriality rules) to attract the related value creation by French users.
Companies—whether French or foreign—that perform at least one of the above two taxable digital services are within the scope of the digital services tax when the group they belong to receives revenue in consideration of such taxable digital services during the previous calendar year in excess of the following two thresholds:
When both thresholds are exceeded, the full amount of French receipts is taxable under certain conditions (as described below). Both thresholds must be calculated at the consolidated group level.
It has been reported by the French press that the new tax will affect an estimated 30 multinational entities—17 from the United States and only one from France. [This estimate of affected companies cannot be considered to be final.]
Does the company provide taxable services in France? How to compute the € 25 million threshold for taxable digital services supplied in France?
The thresholds are based on receipts in consideration for taxable digital services received by the consolidated group:
For the € 750 million threshold, worldwide receipts are taken into consideration.
In order to assess the receipts corresponding to taxable services supplied in France, a proportionate approach must be followed—i.e., a French digital presence ratio must be determined. This ratio applies to worldwide receipts paid during a calendar year in consideration of the taxable services in order to determine the deemed amount of receipts paid in consideration of services supplied in France. This ratio must be calculated for each kind of taxable digital services.
When are the services “supplied in France”?
For digital interfaces:
For targeted advertising:
When is a user located in France?
The user’s IP address will be used to determine whether or not the user is located or present in France.
What is the taxable basis of the digital services tax?
The digital services tax will apply on the percentage representing the portion of taxable services related to France after application of the “French digital presence” ratios (described below) to the corresponding worldwide receipts.
For the two categories of services, the formulas will be as follows:
For digital interfaces
For targeted advertising
For any given calendar year, the digital service tax is due on April of the following year. Two installments must be paid in April and October of the same year (each of them corresponding to advance payment of 50% of the tax due for the previous calendar year) with regularization of the tax liability performed in April of the following calendar year.
For 2019, there are transitional rules. There will be only one installment due in November 2019, based on 100% of sums received in 2018.
For 2019 only, the French digital presence ratios (described above) are based on data over the period running from the date of publication of the law (25 July 2019) to 31 October 2019. A final regularization will take place in April 2020, with applicable ratios based on data of the period running from the date after the publication of the law to 31 December 2019.
The following chart illustrates these procedures.
The liability of the digital services tax can be assessed at the level of the French group.
Companies established outside the EU (or certain EEA Member States) must appoint a tax representative for purposes of the French digital services tax.
The collection of data (monthly receipts in consideration for taxable services, amounts taken into account for computing the ratios, and evidence of processes put into place in such collection, etc.) will be critical—in particular, considering the special statute of limitation of six years, during which all relevant data and details of computation must be maintained to enable the taxpayer to satisfy its obligation to provide these records to the tax authorities upon request.
Administrative guidelines are expected to be released outlining the details of this new tax, but probably not until the first installment of the tax is made in November 2019.
French tax professionals have expressed concerns about the digital services tax in respect of its conformity to the French constitution, to EU law, and with regard to provisions under applicable income tax treaties. Some believe that there will be taxpayers that decide to challenge the tax after they pay the first installment.
For more information, contact a tax professional with KPMG Avocats in France:
Marie-Pierre Hôo | + 33 (0) 1 55 68 49 09 | email@example.com
Laurence Mazevet | + 33 (0) 1 55 68 49 67 | firstname.lastname@example.org
Patrick Seroin | + 33 (0) 1 55 68 48 02 | email@example.com
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.