The French government today released a draft law that proposes to introduce a digital services tax.
The French Finance Minister, Bruno Le Maire, announced a decision to accelerate the adoption of a domestic digital services tax given:
In early February 2019, a first draft of French domestic digital services tax legislation was presented to a French administrative high court for a technical opinion. The initial draft legislation proposed a retroactive effective date of 1 January 2019 but was silent on the rate of the digital services tax (Finance Minister Le Maire had announced a progressive rate up to 5%). There were other uncertainties concerning the scope of a digital services tax.
The content of the draft legislation proposed by the French government on 6 March 2019 is discussed below.
Companies subject to the digital services tax would be those with digital revenue of more than €750 million worldwide and more than €25 million in France. This provision is expected to allow start-up companies to be exempt from the tax, and only very large companies would be subject to the tax. Approximately 30 multinational taxpayer groups would be expected to be subject to the tax (including a French group listed on the Nasdaq).
Under the proposed digital services tax, taxable services could be separated into three categories:
In contrast, companies selling goods on their website or providing content on a platform—as well as communication and payment services—would be exempt from the digital services tax. Similarly, regulated financial services and services provided between companies of the same taxpayer group would be excluded from the scope of the digital services tax.
The burden of proof for determining the location of the user or the place where the account on the interface is opened would rest with the taxpayer.
Although the French government was initially considering a progressive rate for the digital services tax, the draft legislation mentions a flat tax of 3% of the taxable income.
As the digital services tax would be due for each calendar year during which a taxable activity is performed, its final approval and passage by the French parliament before 31 December 2019 would effectively result in a retroactive effective date of 1 January 2019.
The amount of tax paid would be deductible from the accounting result of the taxpayer (hence the corporate income tax basis).
The digital services tax would follow the system established for the value added tax (VAT) with respect to the declaration, recovery or litigation. A yearly declaration would be filed in April of the following calendar year. Two installments of the tax would be due in April and October, the total of which would need to correspond to the amount of the digital services tax that was due for the prior calendar year. The payment of any balance would be due upon the filing of the yearly declaration in April.
For 2019, a “super installment” payment of the tax would be due in October and would correspond to the theoretical digital services tax based on 2018 figures.
The discussion and legislative process of the digital services tax in the French Parliament is expected to start in April 2019. Compatibility of the digital services tax with France’s network of income tax treaties, with EU law, and possibly with the French Constitution may be addressed during this legislative process—in particular, there would have to be attention paid to the possible double application of two national digital service tax regimes on the same income flow.
At the international level and following the interim report published in March 2018, OECD members agreed to review the impact of digitalization on nexus and profit allocation rules. They committed to continue working together towards a final report in 2020. For this purpose, a public consultation meeting will be held on 13 and 14 March 2019 in Paris. The aim is to provide external stakeholders with an opportunity to provide input at the beginning of the process and to benefit from it. On this point, Finance Minister Le Maire confirmed that the French digital services tax would apply until international tax rules are adapted to take into account the digital presence for the purposes of profit taxation. The practicalities of the follow-up to this announcement are unclear.
For more information, contact a tax professional with a KPMG member firm in France (KPMG Avocats):
Patrick Seroin | + 33 (0) 1 55 68 48 02 | firstname.lastname@example.org
Laurent Chetcuti | + 33 (0) 1 55 68 48 87 | email@example.com
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