Pending the implementation of a coordinated international solution aiming at taxing major digital companies, the bill introducing a French digital services tax was definitively voted on 11 July 2019. This 3% tax will apply to revenues collected as of 1 January 2019 and is expected to raise 500 million euros per year.
Digital services targeted
Taxable digital services include:
- Intermediation services, i.e. the provision, through electronic means, of a digital interface which enables users to contact and interact with other users, notably for the purpose of directly delivering goods or supplying services between them. This aims at targeting marketplaces business models.Specific services, such as the provision of email or financial related interfaces, are expressly excluded from the scope.
- Targeted advertising services and users’ data related services provided to advertisers or their agents.
Intra-group services are excluded from the scope.
Companies with a worldwide turnover from taxable digital services, assessed at consolidated group level, exceeding 750 million euros and with a turnover from such services provided in France exceeding 25 million euros during the calendar year, will be subject to the 3% tax, irrespective of their country of establishment.
Territorial scope: services provided in France
Services are considered to be provided in France when a user is located in France. The law provides for the criteria to be used to determine the localisation of the user, e.g. when he/she is using a device located in France, determined by any means, including the IP address.
Tax base to be calculated by the tax payer
The taxable basis is obtained by applying a ratio representative of the proportion of users located in France in relation to the total number of users, to the income derived from the provision of the digital services (VAT excl.).
The taxpayer must keep all information relating to the calculation of the tax base in case the French tax authorities require any further information.
Practicalities on the tax collection
The French digital services tax must be:
- Declared and paid on the appendix to the French VAT return dedicated to turnover taxes for both taxpayers already filing VAT returns in France and on a stand-alone basis for others;
- Taxpayers established outside the EU have to appoint a tax representative subject to VAT in France in charge of filing the return and paying the tax;
- The tax must be paid through two instalments in year Y (April 25th and October 25th at the latest) equal to at least half of the tax amount due and a regularisation must be performed upon filing of the same form on April 25th of Y+1 at the latest.
- A taxpayer can opt to declare and pay the tax for all taxpayers in the same group.
A specific and longer statute of limitations period is granted to the French tax authorities in order to control and reassess this tax, together with specific investigation powers and an ex-officio taxation procedure in case the taxpayer does not respond or responds insufficiently to a request for information on the calculation method applied for the tax base.
The final adoption of the law introducing this new tax raises many questions as regards both its compatibility with other statutory provisions, mainly with EU law, double tax treaties and the French Constitution and its practical implementation arrangements.
Please do not hesitate to reach out to your usual CMS contact should you have any queries about this new tax.