France is preparing to impose a 3 percent digital tax on companies with digital global turnover of more than €750 million and digital turnover of more than €25 million in France. The corresponding bill also delays to 2020 the reduction of corporate income tax (CIT) for large companies. The French Council of Ministers of March 6 decided to adopt the digital tax draft law so that it should be subject to its first reading in Parliament in the beginning of April. Therefore, the description below remains subject to the discussions to take place in Parliament and to additional French tax authorities' guidelines.
Main features of the tax
The purpose of the bill is to introduce a tax on gross revenues from certain digital services characterized by the importance of the Internet user in creating value. A single rate of 3% will be applied to all companies liable to pay the tax. The tax is applied to the price of services excluding VAT. It would be deductible from a corporate tax perspective.
Only companies with a significant digital footprint worldwide (annual worldwide amount of revenue within the scope of the tax exceeding €750 million) and nationally (annual amount of revenue related to France from taxed services exceeding €25 million) will be affected. If applicable, compliance with the above-mentioned thresholds is assessed at the level of the group to which the concerned company belongs.
The tax catches enterprises carrying on the following activities:
- connecting Internet users through digital platforms, i.e. putting at their disposal, through electronic communications, a digital interface so that they can interact with each other, in particular for the supply of goods and services directly among them; or
- targeted online advertising. This covers services marketed to advertisers or their agents, to include on a digital interface advertising messages that are designed in accordance with the user connected to the interface or that are generated at the time of such connection. This covers in particular the purchase, storing and distribution of such advertising messages, advertising reviews, performance measures, and the management and transmission of users' data.
The presentation of the bill provides that the services to be taxed mainly derive their value from local Internet users' activity. In order to take this into account, a specific connecting rule to the national territory is provided for: the worldwide revenues generated by each service will be taxed in proportion to the part of French Internet users within all the users of this service.
The user of a digital interface will be considered as located in France if he/she consults the digital interface through a terminal located in France.
Some services are excluded from the scope of the tax:
- The direct sale of goods and services
- Courier or payment services
- Advertising services for which advertising messages are determined solely on the basis of the content of the website and are identical for all Internet users
- Sales of data collected otherwise than by the Internet or for non-advertising purposes
- Regulated financial services, and
- Taxable services provided between companies belonging to the same group
Practical application of the tax
The new tax will come into force the day after the day of publication of the law.
The taxable event is the completion of the calendar year during which the company received taxable services revenue (cash basis). Therefore, for the 2019 year, it is expected that all amounts received as from 1st January 2019 will be taxable. The tax will be declared and liquidated on the basis of all income received during that year at the end of the first quarter of the following year.
However, two instalments 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 computation of the tax in the yearly return.
For the first tax year, the taxable event would occur at the end of year 2019. There would only be one advance payment equal to the amount that would have been due on the basis of income taxable in 2018.
It is possible to file a consolidated tax return for the companies of the same group. For the first year, the corresponding election may be filed with the tax authorities until September 30, 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.
Corporate tax for large companies
For the financial years opened between 1 January and 31 December 2019, the standard rate of corporate tax remains at 33,33% for companies liable to pay tax with a turnover of €250 million or more, for the fraction of taxable profit exceeding €500,000. The maximum effective corporate tax rate is thus still 34.43% in 2019.
For the parent company of a tax consolidation group, turnover is calculated by adding the turnover of each of the companies in the group.