The French Minister of Economy and Finance has introduced on March 6 a draft law creating a tax on digital services. This draft law has been adopted on April 8 by the National Assembly and will be submitted to the Senate from May 21 before being definitively adopted.
This tax will be levied on companies in the digital sector that generate a significant part of their value from the participation of Internet users located in the national territory.
The tax is largely based on the European Commission's proposal for a common tax system of digital services applicable to digital services, which is currently under negotiation. It responds to an immediate need for tax fairness and will apply until international tax rules have been adapted in order to tax the digital presence of these companies. Thus, the French tax on Internet giants must be a first step towards a more ambitious project led by the OECD by 2020.
The tax will be set at 3% on digital revenues generated in France. More precisely, this tax will be levied on the three types of activities that generate the most valuable: targeted online advertising, data sales for advertising purposes, and the connection of Internet users by of the platforms, in particular marketplaces. These services will be taxed in accordance to the part of the Internet users' activity that is carried out from France.
E-commerce and digital services are not concerned. In addition, communication services, payment services and regulated financial services are also exempt.
In addition, only digital companies with a large audience and high revenue will be affected. Indeed, two tax thresholds are provided for: 750 million euros of digital services taxable worldwide and 25 million euros of digital services taxable in France. The proportion of turnover generated in France would be determined by applying to worldwide turnover a coefficient of digital presence in France, determined on a prorata of French users.
At this stage and awaiting discussions before the Senate, the official Government press release indicates that the amount of this tax will be a deductible expense from the corporate tax base.
The tax would be levied in April of each year. It would be subject to 2 instalments in April and October, each equal to at least 50% of the amount of tax due for the previous year, with a regularization being carried out when the return is filed. In 2019, only one instalment would be paid in October based on the proportion of services attached to France over the period between the entry into force of the law and Septembre 30, 2019. For the regularization of the tax for the year 2019, the proportion of services attached to France would be determined between the entry into force of the law and December 31, 2019.
The tax authorities’ statute of limitations should be extended from three to six years from the year in which the tax is due.
The French government estimated the yield from this tax at € 500 million per year.