1 October 2019
On Thursday, July 11, the French Senate passed the long waited Digital Services Tax (hereafter “DST”) which impose an entirely new tax on large multinationals that provide certain digital services to consumers or users located in France (hereafter the “Taxable Services”) and for which the annual sums received in consideration for these Taxable Services exceed certain thresholds. French president will now have 15 days to sign the bill into law unless the bill is deferred to the Constitutional Court.
Pursuant to the new Article 299 of the French Tax Code, the DST would apply to two categories of services, namely:
Interfacing services : the supply of a digital interface that allows users, individuals or professionals, to contact and interact with other users, including for the delivery of goods or services between those users.
Such services are deemed to be located in France when one of the users concluding an operation is located in France or, in the absence of an operation, when one of the users has an account that has been opened from France to access these services.
Advertising services : services provided to advertisers enabling them to purchase advertising space located on a digital interface in order to display targeted advertisements to users located in France, based on data provided by such users (e.g. keywords used in a search engine).
Such services are deemed to be located in France when the data have been obtained from the consultation of the digital interface by a user located in France.
On the other hand, some specific digital services have been expressly excluded from the scope of the DST such as communication services (e.g. steaming video, on-demand music, mail services), payment services (e.g. bank and insurance services), services provided between related companies.
Taxpayers are defined as companies for which the annual sums received in consideration for Taxable Services, assessed at the level of the group to which they belong, cumulatively exceeds (i) €750m ($844m) worldwide and (ii) €25m ($28m) in France. From a practical standpoint, based on a report prepared by an accounting firm, the companies subject to the tax would be (sorted in alphabetical order): Alibaba, Amadeus, Amazon, Apple, Axel Springer, Booking, Criteo, eBay, Expedia, Facebook, Google, Groupon, Match.com, Microsoft, Rakuten, Randstad, Recruit, Sabre, Schibsted, Travelport Worldwide, TripAdvisor, Twitter, Uber, Verizon, Wish, Zalando.
The DST consists of a 3% single rate applied to all revenues received by the taxpayer for Taxable Services deemed to be made or supplied in France. It should be noted that the DST is not a deductible expense for corporate tax purposes.
The company (or a group company responsible for paying this tax for the whole group) will have to pay two instalments in April and October of each year with the balance being paid in March of the following year (for example: two instalments in April and November 2020 and the balance in April 2021).
However, companies falling within the scope of the DST are liable as from 2019. For the year 2019 only, a single instalment will be paid in November 2019 and calculated at 50% of the tax that would have been due for the year 2018. The payment of the balance of the tax due for the year 2019 will be paid in April 2020.
The administration should specify in the coming weeks the practical application of the DST. However, as the texts currently stand, some questions remain pending such as the compatibility of the DST with (i) the principles laid down by tax treaties and European Union law or (ii) the principle of non-retroactivity of tax laws laid down by the French Constitution. It should also be noted that the Office of the U.S. Trade Representative (USTR) announced an investigation under Section 301 of the Trade Act of 1974 into the French DST that could ultimately lead to unilateral action such as an increase of custom duties.