In the context of an intergovernmental seminar on the digital economy which was held on February 28, 2013, the French Prime Minister presented the government’s roadmap for this industry. The roadmap is organized around three pillars:
- Make the digital economy an opportunity for the young generation;
- Reinforce the competitiveness of French enterprises thanks to the digital economy;
- Promote our values in the digital society and economy.
Among the 18 measures outlined in this roadmap, the 12th one is entitled "Restore our fiscal sovereignty". In this respect, the French government first notes that corporate income tax and VAT paid by companies which have their headquarters out of France are “low” in proportion to the importance of the activity they effectively deploy in France. As a result, the government considers that there is a significant loss of tax revenue (estimated to amount to several hundreds million Euros) and unfair competition between French and foreign enterprises, which raise “a serious fairness concern”.
Tax territoriality rules are said to be no longer appropriate to deal with the digital economy, because the physical location of companies in this industry is not related to the place where they deploy their activity.
The report of the expert mission on the taxation of digital economy submitted to the government in January (the “Colin & Collin Report”) underlined tax optimization practices by some foreign enterprises of the digital economy and made several proposals to restore what would be regarded as an equitable participation of these companies to the national fiscal effort.
The government indicates that the OECD would share the same findings and has initiated work in order to fight base erosion and profit shifting.
The objective of the government is therefore to “restore the French tax sovereignty by adjusting our tax rules in order to avoid that foreign players of the digital economy bypass them.”
Based on these findings, the French government intends to implement three types of measures in relation to the taxation of the digital industry :
- First, the government will push the OECD to recognize the concept of “virtual permanent establishment”. The aim is to ascertain a permanent establishment whenever an enterprise collect and exploit on a large scale personal data which are obtained through the regular and systematic monitoring of users in a territory. Negotiations in this respect have started in the context of ongoing OECD project on Base Erosion and Profit Shifting.
- Second, the government will push the adoption by the EU of a consolidated corporate tax base for companies operating in the digital industry. As will be the case for VAT (as from 2015), providers would have to choose a State of identification, which would levy corporate income tax and allocate it between member states of consumption according to an allocation key to be defined (e.g. turnover or data collection).
- Finally, the government asked the National Council of the Digital Economy (Conseil national du Numérique) to lead a consultation in order to assess possible taxation routes at domestic level. This consultation should be completed by this summer in order to feed the preparatory work on the Finance Bill for 2014.
Concerning VAT, France will require from its European partners strict compliance with the timeline related to the taxation of the consumption of electronic services in the consumer’s State as from 2015.