UK: French Digital Services Tax Enters Into Force

Last Updated: 12 September 2019
Article by Raphaël Béra, Sylvie Vansteenkiste and Fanny Combourieu

On July 24, 2019, the French Digital Services Tax (DST) became law (law n°2015-759 dated July 24, 2019). The new tax is effective as of January 1, 2019.

The French DST will apply at the rate of 3% on the revenues generated from online intermediation services and targeted online advertising in France. In general, companies with (i) digital global turnover of more than EUR750 million and (ii) digital turnover of more than EUR25 million in France are subject to the new tax.

This unilateral measure has been implemented in France in the absence of immediate measures for the taxation of digital services by the EU or at international level. It is expected to be repealed as soon as such a multilateral agreement is reached, although the new law does not provide for any automatic termination of the French DST when that occurs.

The key features of the French DST were described in our previous alert.

Our description below of the practical application of this new tax remains subject to any clarifications that might be provided by French administrative guidelines in the future.

Practical application of the tax

The taxable event for new the DST is the close of the calendar year during which the company receives taxable services revenue (on a cash basis). For the 2019 calendar year, all amounts received as from January 1, 2019 will be taxable. The final amount of tax will be declared and paid on the basis of all income received during the year. The corresponding tax filing should be made in April of the following year (e.g. April 2020 for the fiscal year 2019).

However, two installments are paid during the course of the tax year, on the basis of the amounts due the previous year, and they are taken into account for the final calculation of tax in the annual return.

For the first tax year, the taxable event will occur at the end of 2019. There will only be one advance payment equal to the amount that would have been due on the basis of taxable income in 2018. The percentage of services related to France for this period will be based on the period between July 26, 2019 and October 31, 2019. This advance payment will be due in November 2019. Therefore, it will be important for all companies to quickly understand their position and liabilities with respect to the new French DST.

With respect to the DST, it is possible to file a consolidated tax return for members of the same tax group. For the first year, the election to consolidate is filed with the tax authorities by October 31, 2019.

Non-European groups will need to appoint a tax representative in France for the purposes of paying the tax.

As a general matter, the collection and audit of the tax will be based on the same principles as the collection of VAT. The statute of limitations will be six years.

Each year, before September 30, the government will submit a report to Parliament on the consequences of this tax and its economic impact. This report will specify the break-down (by country) of revenues derived from the tax and on the geographic origin of the groups liable for it.

Implementation of the new DST has already fueled numerous reactions in the French market:

  • Certain operators have informed their clients or business partners that they will modify their fees to take into account the economic impact of the French DST. It is therefore critical for all groups to review the tax provisions of their existing agreements to determine whether the economic burden of the tax can, in fact, be shifted.
  • If other countries (e.g. Spain or the UK) implement a similar tax, this may result in double taxation and/or compliance issues.
  • The US President has expressed his view that, in response to the new French DST, additional US customs duties may be imposed on certain French products (e.g. wine). The final US response may emerge as a result of discussions for the general reform of the taxation of digital activities (which are ongoing at OECD level) but also bilaterally. In particular, it is understood that France could enter into a bilateral agreement with the US to implement the future OECD principles as soon as possible, including a new definition of what constitutes a taxable presence in France; if the French corporate tax liability of a US group is lower than the 3% DST it has paid, it may get a refund of such DST. At this stage, however, it is still unclear how such refund mechanism might work.
  • The new tax remains questionable in various respects, as it might be viewed as not completely consistent with EU law or international tax treaties (e.g. by replacing corporate taxation prohibited by existing treaties) being mainly focused on certain US companies.

Please contact the authors or your usual DLA Piper advisors to discuss the impact of French DST on your business.

On July 24, 2019, the French Digital Services Tax (DST) became law (law n°2015-759 dated July 24, 2019). The new tax is effective as of January 1, 2019.

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