On April 10, 2019, the French National Assembly passed the
Digital Services Tax ("DST") proposal announced by its
Finance Minister, Bruno Le Marie. The DST proposal must still be
passed by France's Senate but if ratified will be retroactively
implemented to January 1, 2019. The impetus behind France's
proposed DST regime is to provide the French government with taxing
rights over companies that do not have a physical presence in
France but still derive profits from French citizens. The proposed
DST would apply to multinational enterprises with global revenue in
excess of 750 million Euros and which generate revenue in excess of
25 million Euros from digital services provided to French citizens.
Qualifying companies would be subject to a 3 percent tax on their
annual French revenue. The digital services captured by the DST
regime encompass the sale of digital advertising and user data as
well as digital marketplaces that allow users to purchase and sell
goods and services to one another virtually. The French government
estimates that the DST would raise approximately 500 million Euros
per year.
The United Kingdom has proposed similar DST legislation that would
levy a 2 percent tax on certain digital revenue. Italy, Spain and
Austria are also considering implementing their own unilateral DST
measures.
The U.S. government has raised concerns regarding other
countries' unilateral approach to implementing their own DST
proposals. In their current form, the proposed DST regimes in
Europe would disproportionately affect U.S. companies and subject
them to double taxation. Current DST proposals levy corporate taxes
on revenues instead of profits which would likely result in
scenarios where profits are effectively taxed twice. The U.S.
government also claims that the DST would violate existing tax
treaties by taxing companies that don't have nexus in those
foreign countries. The U.S. government has urged France and its
other trade partners to wait for OECD guidance on the DST instead
of unilaterally implementing their own versions. Members of the
U.S. House Ways and Means Committee have even recommended the U.S.
government treat unilateral approaches to the DST as trade barriers
to U.S. companies. Such a move could make way for the U.S.
government to retaliate by raising their own trade barriers on
foreign companies.
In response to the criticism from the U.S. government, Finance
Minister Le Maire has reiterated that France's proposed DST is
a temporary solution to taxation on the digital economy and that it
intends to withdraw its version of the DST once a multilateral
consensus is reached by the OECD and its members. The European
Commission has supported its members including France in
implementing unilateral versions of the DST to incentivize the OECD
to expedite its efforts in providing guidance to its members.
To learn more about recent DST developments at the OECD, see Duff
& Phelps'
Transfer Pricing Times article on OECD DST efforts from the edition
published on March 6, 2019. The OECD has received public
comments on multilateral DST proposals. These public comments will
inform the OECD's next presentation on June 8, 2019 to the
finance ministers of the G-20. Ultimately, the OECD is planning to
release its final report on
taxation of the digital economy to the G20 by 2020.
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