France: Administrative guidance regarding digital services tax held invalid (Conseil d'Etat decision)

A decision regarding digital services tax

A decision regarding digital services tax

The French supreme administrative court (Conseil d'Etat) yesterday issued a decision regarding the digital services tax, and holding invalid certain paragraphs of the French administrative guidance that deny the benefit of an exception to the tax for the supply of digital content to multi-player online games—provisions that could be so broadly interpreted that they captured within the scope of the digital services tax, an entire sector of activity that had been expressly excluded by the statutory language.

The decision of the Conseil d'Etat was initiated when a taxpayer in September 2021 filed a request for an “appeal of excessive authority” (Recours pour Excès de Pouvoir).

The case identifying information is: CE n° 461058 (31 March 2022)

Summary

In the case before the Conseil d'Etat, the legality of certain administrative guidance interpreting the digital services tax (BOI-TCA-TSN-10 and BOI-TCA-TSN-20) was at issue.

The court effectively annulled certain paragraphs of the French administrative guidance that denied the benefit of an exception to the tax for the supply of digital content to multi-player online games—provisions that otherwise capture under the digital services tax, an entire sector of activity that had been expressly excluded by the statutory language (specifically the fifth and sixth sub-paragraphs of paragraph n° 170 of the BOI-TCA-TSN-10-10-20s).

The Conseil d'Etat found that the administration in its interpretative guidance had exceeded the scope of the law and, thus, invalidated this provision in its entirety.

Furthermore, the Conseil d'Etat re-established the scope of an exclusion for services rendered between companies of the same group (as provided under the law)—an exclusion that essentially had been eviscerated by the administrative guidance. According to the administrative guidance, the provision only authorized the exclusion on the condition that the services were exclusively rendered to companies of the same group—in other words, the performance of identical services for the benefit of third-party customers prevented a company from relying on this exception for the totality of the income. Thus, paragraph 80 of the administrative guidance, as published under BOI-TCA-TSN-10-10, was annulled by the court.

Finally—and somewhat surprisingly—the Conseil d'Etat also annulled paragraphs of the administrative guidance that define the conditions for considering the income derived from “bundled offerings” (the fifth, sixth, and seventh sub-paragraphs of paragraph no. 140 and the third sub-paragraph of paragraph no. 150 of BOI-TCA-TSN-20).

With its decision, the Conseil d'Etat gave the administration two months to amend the provisions deemed “illegal.”

KPMG observation

The court’s decision does not exclude the possibility that the administration could ask the Parliament to consider and pass legislation that would legislatively support its position and thus return to the administration’s prior interpretation of the digital services tax (as it had been interpreted since 2020). 


For more information, contact a tax professional with KPMG Avocats in France:

Marie-Pierre Hôo | mhoo@kpmgavocats.fr

Patrick Seroin Joly | pseroinjoly@kpmgavocats.fr

Laurence Mazevet | laurencemazevet@kpmgavocats.fr

 

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