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France: Digital services tax (3%) is enacted

France: Digital services tax (3%) is enacted

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.


Related content

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).

Why the French digital services tax (unilateral measure)?

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).

Which digital services are targeted?

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):

  • The provision of a digital interface enabling users to enter into contacts and to interact with others (“intermediary services”). There is a list of excluded services such as, for example, the supply of digital content, communication services, and qualifying payment services in the meaning of Article L. 314-1 of the French monetary and financial code.
  • The provision of services to advertisers that aim at placing targeted advertising messages on a digital interface based on data collected about users and generated upon the consultation of such interface. The purchase and storage of advertising messages, advertising monitoring, and performance measurement, as well as the management and transmission of user data also fall within this category (“advertising services based on users’ data”). Advertising services on a digital interface that are not targeted based on user’s data are de facto tax exempt.

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.

Which entities may be affected?

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:

  • € 750 million for taxable digital services supplied worldwide
  • € 25 million for taxable digital services supplied in France

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 “intermediary services”—the term receipts means all sums paid by users of the interface for accessing to it and using it
  • For “advertising services based on users’ data”—all amounts paid by advertisers or their agents in consideration of the actual posting of advertising messages or any economically linked transaction

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:

  • When a transaction is concluded during the calendar year by one of the users located in France, or
  • Concerning a digital interface does not enable the supply of goods or services, when one of the users possesses during that year an account having been opened from France that allows such user to access all or part of the services available on that interface

For targeted advertising:

  • When an advertising message is placed during the year on a digital interface consulted by a user located in France
  • For sales of data generated or collected upon the consultation by users of digital interfaces, when data sold during that year is derived from the consultation of one of those interfaces by a user located in France

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

digital interfaces

For targeted advertising

targeted advertising

When is the digital services tax payable and pursuant to which procedures?

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.

DST payment timeline

The liability of the digital services tax can be assessed at the level of the French group. 

What compliance aspects need to be taken into consideration?

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.

KPMG observation

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 |

Laurence Mazevet | + 33 (0) 1 55 68 49 67 |

Patrick Seroin | + 33 (0) 1 55 68 48 02 |

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