France digitalized economy taxation

The National Assembly passed on July 4th the French Digital Services Tax Bill, and the Senate did the same July 11th, 2019. 

Services in scope: 

  • Multisided digital interfaces, that enable users contact and interaction, for the delivery of goods or services directly between them.

  • Services provided to advertisers o other agents enabling the purchasing of advertising space on a digital interface.

The Ads need to be targeted to French users and based in the data provided by such users.

This category includes the management and communication of users data, which seems to resemble the 3rd category of services in the EU directive, but with the nuance of talking not about any data but just the data generated by their interaction with the digital platform, and transmitted for advertising purposes.

Not in scope:

  • Digital content
  • Communication services
  • Payment services + certain Financial regulated services subject to authorization

Not taxable:

Direct sale of goods / services online.

Non targeted Advertising, equivalent to ADS / messages sent solely on the basis of web content and identical to all users.

Threshold for becoming taxable:

  • More than 750 M€ WW revenue in taxable digital services
  • More than 25M€ in taxable services in France

Tax rate = 3%


  • Retroactive effect to January 2019.
  • Exceptionally, for 2019 also a unique advanced payment to be done based on 2018 Revenues of in-scope services but using the 2019 French users’ proportion.   Payment due in October 2019, and to be regularized to actual numbers by April 2020.
  • At Tax Administration request, companies must be able to support the break-down between in-scope services provided in France and outside of France.
  • Statue of limitation for this tax is extended to 6 years, more than other local standard taxes.

Immediate US reaction

Just a few hours after the new tax approval at the highest parliament chamber in France, U.S. President requested a trade restriction & discrimination investigation in respect to it for US commerce, and Washington set hands on immediately.

Many commentators remembered the similarities to the initial China / US discussions that ended up with the United States imposing additional tariffs and trade restrictions.


France has managed a fast and expedite legislative process after the EU Commission was not able to get unanimous approval for the EU equivalent directive they were strongly endorsing.

The tax, even being a targeted approach for digital businesses with a difficult legal construction, provides a more centered approach in some key elements that other local Governments are failing to clarify on their drafts, like what is to be considered as Targeted Advertising. It also sets a clear line around the type of data whose transference could be subject to the tax.

The global revenue threshold is in the French DST case based in digital in scope services and that makes a huge difference versus the EU directive and other draft laws in terms of the number of companies to be affected by this regulation.

France it is firmly sticking to their announced plans in the middle of a fierce international reaction from many segments of society and specially from the US who has expressed its view of the law as a pure “anti-american companies” legal instrument.

Macron has 15 days after July 11th to ratify the law, let’s see how precise the pen on his hand is in responding to the tremendous international pressure and what is the reaction it provokes in the rest of the EU countries following shortly behind in their same line of thinking.

The US Section 301 Investigation is in due course now, and other legal challenges could potentially come from the affected companies under different angles related to tax treaties, EU freedoms, and others; but none of those streams is going to be quickly nor easily resolved when open.  

For the ones we have been closely following this topic internationally, it would be a real surprise at this stage if during the next few days something makes this demonstration of tax sovereignty to be on hall and sent to the consideration of the French constitutional court.  

Digitalized economy taxation: US position within a formula = “MRPS + SH + MA”

The US Treasury Secretary said a few days ago that despite the broad support for the OECD inclusive framework work-plan more work needed to be done by “dealing with technicalities of how we turn this into an agreement”.

Other US Treasury members shared their technical positioning with more detail in different forums.

The summary of their positioning is that looking forward they only see one potential economic method to recognize the value of the NTR (New Taxing Right), which is the Modified Residual Profit Split, consisting in allocating a portion of the MNE residual profit, only when there is such, and based in an allocation key.  

In return to this “extra” NTR the market countries should provide in their view much more certainty on tax positions to MNEs. US Treasury therefore suggest a safe harbor to compute routine profits, factual based analysis to define a “normal return” attached to the NTR and a mandatory arbitration to be accepted by the market countries when discrepancies arise on the factual base output.

In essence, their formula equals:

“Modified Residual Profit Split + Safe harbor + Mandatory arbitration”.

A fundamental point of their perspective is that the profit shift resulting from any new technical rules should be rather rational/modest and never mean a deep change if agreement is to be achieved.

Since years ago, they have frontally opposed any measure that singles out just digital companies from a tax perspective in the international taxation world, and they think their current view of the potentially only acceptable solution (the “formula”) would be wider applying to more industries.  

DET3 Comments

Many of the voices coming from the US are expressing that the general view around this relevant topic is that any revenue shift should be modest, and get in return a more predictable, sustainable model that provides certainty to multinationals.  On the “shift size” topic, it remains to be seen the position of other countries that were affected by the dual condition of some MNEs extreme TP policies and the fast changes in economy and business models due to digitalization (the beyond BEPs factors). Other countries are actually more in favor of different economic methods.

But leaving aside the “technical formula”, another question, is not in respect to the “modesty” of the numbers, but of the scope, which is strongly connected to the political debate.

Small changes one after the other can finally digest a deep international reform, but knowing how difficult is reaching consensus in a 129 countries club each time now, how different and evolved the economy trade & commerce will look like in 10 years, and the pace of change and economic cycles, the fundamental question about this formula is if we really want an option that is not a semi-structural solution, but a “modest” evolution of the current system that will still lack behind.

What is very welcome is that the US is also endorsing a level of simplification measures as part of this exercise.

We consider the cross-industry application as logical and something clear since early BEPs action 1 stages (pervasive nature of digitalization in the economy). But fast measures have to be taken to ensure appropriate representation of different vertical industries private sectors stakeholders in the strong pace of this debate to avoid further decision-blocks in late 2020 December because of this.   

G20 Ministers endorse OECD Work Plan from Japan

G20 Finance Ministers endorsed during their Japan-Fukuoka meeting in June 2019 the 2 Pillars of the OECD Program of Work structuring the process to achieve a unified approach on digitalized economy taxation.

Further to their message, global growth appears to be stabilizing, with a moderate recovery; However, as growth remains low and trade and geopolitical tensions have intensified, they stated fiscal policy should be flexible and growth-friendly, with continued implementation of structural reforms.
A critical one is indeed the one affecting digitalized economy taxation, where they endorsed working towards a fair, sustainable, and modern international tax system.

They compromised redoubling efforts for a consensus-based solution with a final report by late 2020, as they know the G20 leadership can be instrumental in getting political engagement and compromise.

DET3 comments

Considering how the international regulatory landscape is boiling around taxing an economy that has a fast pace and deep digitalization, this endorsement was expected.
The technical and political fronts are going to have to intensively run in parallel during the next months. A clear observation by the Ministers was that political agreement needs to be reached soon on the fundamentals of the solution if deadline is to be achieved. In today’s OECD Webcast, Pascal Saint-Amans mentioned there will be focused work during summer to bring countries or countries/blocks positions together, towards the unified approach.
The secretariat workstream developing the impact and economic analysis will become instrumental here considering standard political clearances and decision making in this field, but some flexibility will be required by the political bodies if progress is to be done as the information will likely be far from perfect. Joint and agile private sector/ OECD inclusive framework collaboration should be very relevant here.

OECD Program of Work, organization & resources to resolve digitalized economy taxation

Following its pre-announced calendar, the OECD published on May 29th, 2019 the “Program of Work” structuring the process and organization to achieve a global consensus based solution to tax the digitalized economy by December 2020.

The process and objectives has been agreed by the 129 “Inclusive Framework” BEPS countries and it resounds on the 2 pillars introduced in the early 2019 Policy Note  and following docs.

A one pager summary of the Process & Organization structured is presented in the following chart (click on it to enlarge):

Digitalized economy taxation

DET3 Comments:

It is positive to see that the really ambitious but necessary objective of reaching a global consensus based solution on the 2 Pillars in a limited timeframe, it is also spoiling the need for evolving the way of doing things at OECD level.  In person meetings are going to be supplemented on-demand by remote work as necessary, and likely incorporating the same kind of technological tools that enable big efficiency in today’s digitalized world when it comes to innovation fast development and iteration. Likely the new O.N.E. collaborative suite (OECD Network Environment) will be tested and stressed during the execution of this ambitious tax policy challenge.


Israel Tax Authority just shared its clear intention that once a new minister of finance takes office, the Digital Services Tax matter would be quickly raised on the top of the agenda and a detailed plan formulated. Not much information has been shared other than their initial idea is a 3-5% tax rate charged on these companies’ digital in scope turnover.

The information available indicates that the EU Directive will be a close to follow guidance and the French current advanced law draft will be of strong influence and inspiration for local regulators.

DET3 comments

Let’s remember that Israel was one of the earlier countries to set focus on Digital PE types, publishing the 04/2016 Circular addressing Corporate Tax and also VAT PE aspects of a foreign company with significant digital presence.

In theory, when those digital companies are conducting substantial business activity in Israel and providing services to customers in Israel, the circular in practice imposed a 25% tax on the income and also the obligation for VAT registration in some cases.

This has been generating relevant friction with foreign Digital giants, and it is to be seen if an approach that modifies and alters the treaty based in force PE definitions can be validly supported. If a digital services tax is added to the equation, tax landscape will be burdensome and not easy to navigate for foreign digital players in Israel.

All, at a moment when their own  Startup ecosystem is really booming and fueled by fresh capital, scientific resources and Government support.  Is it a coincidence ?


The Czech Finance Minister has recently mentioned that they have an advanced legal body text for local Tax on a digital services that is aiming to tax selected “global internet giants”.  

They expect to make the draft public by early June.

The ministry confirmed that this is their “reaction to the failure of solving this (issue) on the European Union level” and that the rate might be a 7% which is well above most of the other existing unilateral digital services tax measures.   

The activities / revenues in scope are expected to be very aligned to the European Union draft Directive, the well-known:

  • Targeted advertising on a digital interface
  • Use of multilateral digital interfaces
  • Sales of data collected about users of digital services

The same EU Directive global turnover of €750 million or more threshold would apply and the minimum threshold for in scope services revenue from local users has yet to be defined

The initial idea is for this legislation to be effective from the middle of 2020 onwards if finally passed.


As a measure included in the 2019 Budget law with the amendments for the Service Tax, the proposal is that from 1 January 2020 onwards, Malaysia will be imposing a service tax on digital services that are imported by consumers (B2C).  The proposal has yet to be approved by the Upper House of the Parliament.

A 6% service tax is to be levied on the value of any digital service that is provided by a foreign service provider (“FSP”) to any consumer in Malaysia.

  • “Digital service” definition includes “any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated”.

    Therefore, the services list to be captured is wide, amongst others:   music & video streaming, cloud services, provision of software online and digital advertising services.

  • “Consumer” is defined as any person who fulfils any two of the following conditions:

    • makes payment for digital services using credit or debit mean provided by any local financial institution or company;
    • acquires digital services using a Malaysian IP address or through a smart phone with a country code assigned to Malaysia; or
    • resides in Malaysia.

Once law is finally passed, any FSPs who meet the mandatory registration threshold will be required to register for service tax before September 31st, 2019, being possible to exercise an online registration.

Compliance obligations derived from the registration:

  • charge 6% service tax to local consumers
  • issue an invoice on the captured transactions
  • file a service tax return
  • keep transaction records for 7 years

DE3 Comments

This tax does not seem to be an OECD BEPS Action 1 DST type, nor a DST special indirect tax but not VAT/GST, but in this case is an indirect tax that is to be inserted in  as a part of the recently created services tax, that was replacing the general sales tax in the country.

As the definition of consumer is wide, there are some doubts about the fact of companies also falling there and having to exercise the self-assessment rule in their B2B returns, something critical to be clarified, specially for SaaS and PaaS value foreign value propositions, but seems they are part of the targeted approach.


The UK government’s consultation on the design of a new 2% tax on digital services revenue closed at the end of last February.  

These are some of the insights from the approach we can infer behind the consultation document:

  • The tax is very narrowly targeted to certain digital business models to reflect the value they derive from the participation of UK based users. So rather than try to capture specific transactions, the target are full business models whose main elements are properly defined. Many of the definitions are based in practical observation of the operation of the targeted business models.
  • User base is a central value driver critical to success or failure of the business.

  • User participation is defined as:

    • Generation of content
    • Depth of engagement: many time spent in the platform, generation of content and inter-actuation with other users & content tailored to users based in their platform use.
    • Network effect & externalities
    • Users Co-contribute to the business offering and contribute to the brand of the platform by reviewing and rating content.
  • Business models / activities taxed:
    • Social Media Platforms
    • Search Engines: Much of the content delivered directly or indirectly by users of the platform. Experiences tailored to individual users. Key revenue driver is advertising.
    • On-line marketplace:  Facilitating sales. Development of a large user network in either side of the platform, encouraging users for public reviews to regulate the quality of the products they intermediate.
      Providing a platform to third parties to list products & services & communicate with prospective buyers.
  • Not in scope: 

    • Financial or payment services
    • Sale of own goods online (including direct sales of market places where they take title).
    • Revenue generated from direct sale of online content (TV-cine- music subscription services or online newspapers) where the business either owns the content or has acquired the right to distribute content.

The document makes an effort to define ‘user contribution’ but ask for input.

Once you fall in, likely all transactions should fall in principle unless you can probe that you have revenue of out of scope activities that is not ancillary to business model catch by the tax and is clearly identifiable.   

The UK DST would be tax deductible from the tax base, but its tax quota not creditable as it is not a corporate tax.

If a foreign digital company principal has a limited risk distributor in the UK, the DST generated for the portion of revenue billed locally will be a deductible expense in the UK LRD, but HMRC expects the cost of it to be passed to the principal with no decrease in UK Corporate Tax liability.

This UK proposal is based in user participation in selected digital business models and does not pretend to solve the taxing issue fundamentally but in the short run as the UK is also working at OECD level where some of the current options on the table to address action 1 would have a much wider spectrum.

But the document confirms that time to action on this topic is NOW, being the DST a temporary measure to be discontinued if an “appropriate global solution is successfully agreed and implemented”.

As for now, UK Government maintains DST expected entry into force target date April 2020.