French DST passed by Parliament clarifies location of users

By Pascal Luquet, International Tax Partner with Grant Thornton Société d’Avocats

The French Parliament definitively adopted, on July 11 the digital services (DST) after a vote of the Senate.

During the Joint Committee meeting held on June 26 a common position was reached between the Sénat and the Assemblée Nationale.

The new draft law does not differ significantly from the initial draft proposed by the government on March 6, with the notable exception of a provision clarifying how the location of a user of taxable services is identified for purposes of the new tax.

The draft law can be considered final, if not challenged before the Constitutional Court.

Scope

The DST will apply to MNEs which exceed, during the previous year, the cumulative thresholds of a consolidated worldwide €750M turnover on digital services and a national €25M turnover on digital services.

Digital services are defined as intermediation services (i.e., theprovision of a digital interface that allows users to contact and interact with other users notably with a view to supplying goods or services between those users) and targeted advertising services (i.e. services marketed to advertisers enabling them to purchase advertising space located on a digital interface to place targeted advertising based on personal data – this includes notably the sale of user data, services for the purchase, storage and distribution of advertising messages, advertising control, and performance measurement).

Excluded activities are services mentioned above where they are provided between companies belonging to the same group, advertising services if general and non-personalized, direct sale of goods or services, financial services including crowdfunding platforms,  and the provision of a digital interface by a person who uses it primarily to provide users with digital content (videos, games etc,), communication services or payment services.

A digital service is provided in France if the user of the digital interface uses a terminal which is located in France (such localization can be determined by any means including the IP address of the user). 

Moreover, the following services are deemed provided in France:

  • The interaction between users of a digital platform where one of the users has concluded a sale or provided a service in France or, in the absence of such operation, where one of the users has an account open in France to access such services;
  •  For targeted advertising services, the sale of data collected from users located in France, or the placement of a targeted advertisement consulted by a user located in France

Tax computation

The rate remains at 3%. The tax base would consist of the turnover generated by the digital services mentioned above provided in France and adjusted to retain only the share of such turnover that reflects the share of digital services connected to France. 

Depending on the type of services, the share of digital services connected to France is determined by the number of users located in France or by the number of accounts opened from France enabling access to the services provided by the digital platform.

Payment

As the tax period for the DST is the calendar year, the applicability of the DST to an MNE will be evaluated at December 31.

The DST will be paid via an instalment in November 2019, computed based on 2018 revenues. 

Nonetheless, for 2019, the share of digital services connected to France will be assessed over the period spanning from the day after the law is published to October 31, 2019. 

The outstanding amount due for 2019 will be paid in April 2020 with an assessment of digital services connected to France performed over the period spanning from the day after the law is published to December 31, 2019.

Taxable MNEs will be able to centralize payments and returns in a single entity.

Documentation requirements

MNEs will must keep at the disposal of the French tax authorities all documents, supporting revenues generated, by category of service, and distinguishing services connected to France from services not connected to France. 

In this frame, the French tax authorities are given the prerogative to request information to the entity charged of paying the DST.

–Pascal Luquet is International Tax Partner with Grant Thornton Société d’Avocats

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