Companies hoping to find out whether they will have to pay France’s digital services tax may be left disappointed by new draft guidance.
Taxpayers know that the tax, signed into law July 25, will apply to any company that has worldwide revenue of at least 750 million euros ($834 million) and 25 million euros of digital sales from either online advertising or acting as a digital intermediary (like an online marketplace). But they aren’t sure how this latter category will be defined.
“The lack of guidance on scope means that companies I represent are still in the dark about whether they have reporting requirements under the rules,” said Jessie Gaston, a tax partner at law firm Dentons in Paris.
The Oct. 17 draft guidance, which is still subject to a consultation that closes Nov. 29, focuses on reporting and payment procedures for the levy. The first payment of the tax is due Oct. 25.
“This is the biggest question mark with this tax, who is in it and who is not,” Gaston said. “Until we have these guidelines we have no certainty and for those who are not certain they are just going to have to work on the assumption they are caught.”
The best way for companies caught in the uncertainty to avoid breaking the law is to seek tax rulings from the tax office, she said.
The guidance does, though, confirm that the sale of electricity, alcohol and alcoholic beverages and manufactured tobacco products will be excluded from the tax, even if they are sold through an online marketplace.
Companies that aren’t registered to pay value-added tax in France have a deadline extension until Nov. 25, but this won’t apply to many multibillion-dollar businesses.
The French law has already raised the hackles of the Trump administration. The U.S. Trade Representative opened a section a 301 investigation into France’s digital tax in July, to examine whether the measure harms U.S. business.
France has said its measure is just a placeholder until the Organization for Economic Cooperation and Development finds international consensus on a rewrite of global tax rules to address concerns about where and how much digital firms are taxed. That project, which must win agreement among more than 130 countries, is set to be completed in 2020.
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The guidance provides compliance information for companies that know they will be caught by the tax, such as Facebook Inc. and Amazon Inc., said Michel Collet, a partner at CMS Francis Lefebvre–Avocats.
“The guidance really focused on the payment rules and structures for the tax which is quite similar to VAT rules,” he said.
The guidance also clarifies what type of information companies will need to collect to enable them to calculate how much is due, and to keep for audit purposes, he said.
For example, the guidance says online marketplaces must collect the total number of transactions carried out during the month where:
- The buyer is located in France but not the seller;
- The seller is located in France but not the buyer;
- The buyer and the seller are located in France; or
- Neither the buyer nor the seller is located in France.
The last point is presumably so that the government can calculate what percentage of revenue is generated in France, said Gaston.
“This guidance today will be help for companies trying to figure out exactly what they should be collecting to calculate the tax and how they report it,” she said.