As announced last December by Bruno Le Maire, French Minister of Economy and Finances, a bill setting up a “Tax on certain services provided by enterprises of the digital sector”, commonly known as “GAFA Tax”, was presented this morning before the French Council of Ministers, in order to overcome the lack of consensus between the Member States of the European Union, regarding the proposal for a Council Directive dated 21 March 2018.
1. Services falling within the scope of this tax
Pursuant to this bill, a new tax would be created, which would be based on the amounts collected in consideration of the provision in France of the following services:
- Connecting users through a digital platform: the making available of a digital interface allowing users to contact and interact with other users for the purposes of delivering goods or services between them (marketplace, online platform of services…)
- The sale of advertising space and digital data: services for the purchase, storage and broadcast of advertising, advertising control and performance measurement, as well as services for the management and transmission of data related to users. This tax would also cover the sale of data for advertising purposes.
The amounts collected for the following services would not be subject to tax: (i) the making available of a digital interface by a person using it as a primary means to supply users with digital content, communication services or payment services, (ii) of regulated financial services and (iii) of services provided between enterprises belonging to the same group.
2. Trigger thresholds
Taxable enterprises would be those, whether or not established in France, whose amounts collected yearly derived from the provision of the above-mentioned services exceeds, during the previous calendar year:
- EUR 750 million worldwide
- and EUR 25 million at the level of France.
These two thresholds are cumulative; therefore, enterprises that do not meet one of these two thresholds would not be subject to the tax.
For enterprises, which are related to other enterprises through an exclusive control relationship, within the meaning of section II of Article L. 233-16 of the French Commercial Code, (i.e. enterprises required to prepare consolidated financial statements) compliance with the thresholds would be assessed at the level of the group they constitute.
3. Focus on the notion of services “provided in France”
Taxable services are those provided in France. The bill refers to the location of the user. The user of a digital interface would be located in France if it consults it on a device located in France.
Thus, as regards the provision of a digital platform for the exchange of goods and services, the service would be deemed to be provided in France when one of the users which concludes the transaction by means of the digital platform is located in France or, failing that, when the user of the digital interface has opened an account from France giving access to all or part of the available services.
Advertising income would be taxed in France when an advertisement is placed, during the calendar year, on a digital interface consulted by a user who is located in France.
Sales of users’ data generated or collected during the consultation of digital interfaces by users, would be taxed in France if the data is derived from the consultation of one of these interfaces by a user located in France.
4. Applicable rate and payment terms of the tax
The tax rate would be set at 3 %.
The tax would be based on the amount, excluding VAT, of the amounts collected yearly by the taxpayer, attributable to France, in consideration for a taxable service provided in France.
The amounts to be taken into account would be the amounts collected as of 1 January, including for calendar year 2019.
The person liable for this tax would be the person which collects the amounts.
The tax should be declared in the annex of the CA3 French VAT return.
- For the persons liable to pay VAT, it would be declared simultaneously with the CA3 VAT return filed in respect of March or of the first quarter of the year following the one in which the tax became payable;
- For the persons not liable to pay VAT in France, it should be declared no later than April 25 of the year following the one in which the tax became payable.
Under certain conditions, a person liable to pay the tax could choose to declare and pay the tax for all the taxpayers in the group to which it belongs.
The tax should be paid by means of two advance payments in the year in which it becomes due and at least equal to half of the amount due in respect of the preceding year.
For 2019, an advance payment should be made by enterprises providing taxable services in France (see above), when the sums collected in consideration of the provision of these services in 2018 exceed the thresholds for applying the tax. This advance payment must be made, for the persons liable to pay VAT, when submitting the CA3 return in September or in the second quarter of the year or, in other cases, by 25 October 2019 at the latest.
The amount of this advance payment would be equal to the amount of tax that would have been paid, taking into account the amounts received in 2018 in consideration for taxable services provided in France.This advance payment would be refunded if it is found that the conditions for tax liability are not met in 2019.
In addition, this draft provides for a specific procedure for the French Tax Authorities to obtain supporting documentation on the calculation of this tax, without characterizing a tax audit.
For corporate tax purposes, the amount of tax paid would be deductible. In this regard, the draft also postpones for a year the decrease of the corporate income tax rate for large taxpayers, initially planned for 2019.
This bill will be discussed by the French Parliament in the coming weeks and could be amended.