On 11 July, the French Senate (following the French National Assembly on 4 July) adopted the law creating a "Tax on certain services provided by large companies in the digital sector," the so-called DST.
The adopted text is the result of the bill, which we described in our alert dated 6 March 2019, the French Government presented last March. Even though members of the French Parliament have retained the essence of the mechanism inspired by the European directive draft, they have nevertheless enriched the law with important clarifications and made some notable changes with respect, inter alia, to its scope, the location of taxable services and its implementation in 2019.
This law will enter into force on the day after its publication in the Official Journal, after being, where applicable, examined by the the Constitutional Court.
1. Scope of the DST
The following services are subject to the DST:
- 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.
However, the making available of a digital interface is not a taxable service:
- where the person making the interface available uses the digital interface as a primary means to provide users with (i) digital content, (ii) communication services and (iii) payment services according to Section L. 314-1 of the French monetary code;
- when the digital interface is used to manage certain regulated financial systems and services expressly listed in the law (such as interbank payment systems or systems for the payment and delivery of financial instruments, trading platforms, advisory activities in participatory investments….);
- where the purpose of the digital interface is to enable the purchase or sale of services aimed at placing advertisement. In particular, this provision exempts exchanges and programmatic platforms.
Finally, services provided between enterprises belonging to the same group are excluded from the scope of the tax.
2. Revenue thresholds
An enterprise that provides services that are within the DST's scope is subject to the DST, whether or not it is established in France if its yearly revenue derived from in-scope services exceeds two thresholds during the previous calendar year:
- EUR 750 million worldwide; and,
- EUR 25 million in France.
The revenue threshold test is a conjunctive test; if an enterprise does not exceed both thresholds, it is not subject to the DST.
For enterprises, which are related to other enterprises through an exclusive control relationship, within the meaning of Section L. 233-16 of the French Commercial Code (i.e., enterprises required to prepare consolidated financial statements), the revenue of the entire group is aggregated when determining whether both revenue thresholds are exceeded.
3. Notion of services “provided in France”
Taxable services are those provided in France. To determine the services deemed to be provided in France, the text is notably based on the user's location of a digital interface.
The user is considered to be located in France if it accesses the digital interface through a device located in France.
The DST prescribes several criteria for determining whether the device is located in France, including the device's IP (Internet Protocol) address, in compliance with the rules relating to the processing of personal data.
4. Tax base and rate of the DST
The tax rate is set at 3%.
The tax is based on the amount, excluding VAT, of all the sums collected in the world by the taxpayer in exchange for the provision of in scope services described above, multiplied by the percentage of the aforementioned services connected with France.
This percentage is equal:
- When the digital interface allows the execution, between users of the interface, of the delivery of goods or provision of services : to the proportion of operations of delivery of goods or provision of services for which one of the users of the digital interface is located in France;
- When the digital interface does not allow the delivery of goods or provisions of services : to the proportion of users holding an account which has been opened from France and allowing the access to all or part of the services available from the interface and that have used this interface during the calendar year concerned;
- For services related to the sale of advertising space other than the sale of data that has been generated or collected when users consult digital interfaces: to the proportion of advertisements placed on a digital interface based on data relating to a user who consults this interface while being located in France;
- For sales of data that have been generated or collected when users consult digital interfaces: to the proportion of users for whom all or part of the data sold were generated or collected during the consultation of a digital interface, when these users were located in France.
The text provides that certain services relating to taxable services (in particular operations independent of access to and use of the taxable service, and amounts paid in consideration for the making available of a digital interface facilitating the sale of excise goods where they are directly and inseparably related to the volume or value of such sales) are, under certain conditions, not included in the tax base.
The amounts to be taken into account are those collected as of 1 January, including for calendar year 2019.
It should be noted that the amount of tax paid will be deductible from the French corporate income tax. France has been planning to lower its corporate income tax rate for 2019. The same law that adopted the DST has postponed the lowering of the corporate income tax rate for large companies.
5. Filing and payment
The person liable for this tax is the person which collects the amounts.
The tax will have to be declared in the annex of the CA3 French VAT return:
- for the persons liable to pay VAT, 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, no later than April 25 of the year following the one in which the tax became payable.
The tax will have to be paid by means of two advance payments in the year during which it becomes due; each being equal to half of the amount due in respect of the preceding year. The balance payment will have to be made on the CA3 filed in respect of the month of March, or the first quarter, of the year following the year during which the tax became payable.
Under certain conditions, a group may opt for a consolidated regime for the whole group regarding filing and payment requirements. The option, which must be exercised before 31 October, with the agreement of all the taxpayers of the group concerned, is valid for at least three years. For 2019, enterprises, which provide in scope services in France, must pay a single advance payment if the sums collected in consideration of the provision of these services in 2018 exceed the thresholds for applying the tax.
This advance payment will have to be paid, for the persons liable to pay VAT, when submitting the annex to the CA3 return filed in respect of the month of October, or, in other cases, no later than 25 November 2019.
The amount of this advance payment will be equal to the amount of tax that would have been paid, taking into account the sums collected in 2018 in consideration for taxable services provided in France. The representative percentage of the share of services connected with France will be assessed during the period between the day after the publication of the law and 31 October 2019. The balance payment of the tax will be determined by applying the representative percentage of the share of services connected with France, which will be assessed during the period between the day after the publication of this Act and 31 December 2019.
Where the taxpayer is not established in a European Union Member State or in any other State party to the Agreement on the European Economic Area that has concluded a convention on the administrative assistance clause to fight against tax fraud and evasion as well as the mutual assistance convention on tax collection, the taxpayer shall appoint a representative subject to VAT established in France. The representative must be accredited by the competent tax authorities and must undertake, where applicable, to carry out the formalities in the name and on behalf of the principal and to pay the tax in the principal's place.
The text also provides for:
- an obligation for the DST taxpayers to keep, in support of their accounting, information on the amounts collected monthly in consideration for each of the taxable services provided, distinguishing between those relating to a service provided in France and abroad and, where applicable, those excluded from the base, as well as the monthly quantitative elements used to calculate the percentages representing the share of taxable services connected with to France.
- the implementation of a specific procedure allowing the French tax authorities to ask entities liable to DST for justifications on all the elements used as a basis for calculating this tax, without characterizing a tax audit.
In order to preserve the temporary nature of this tax, members of the French Parliament added to the legislation a mandatory submission by the Government to the Parliament of a report on the annual status of international relations. The report will indicate, where appropriate, the date on which a new mechanism implementing a coordinated international solution will replace this tax.
They have also notably required, in the absence of prior notification of the tax to the European Commission, that the Government submits to the Parliament, within three months from the enactment of this law, a report on the reasons why the above-mentioned tax has not been notified to the European Commission.