France to increases online platforms reporting dues

Previous to July passed French DST, any foreign company managing a digital platform was already required to observe a number of reporting obligations like delivering user’s activity reports to the users and also to the French Tax Authorities. 

For the report to the Tax Authorities, the first deadline will actually be January 31st, 2020 becaue of  the early French transposition of EU VAT Directive 2006/112/EC article 242 bis. Across Europe such Directive will be in effect from 2021 onwards.

On top of the individual or corporate digital platform users identification data to be reported, a recent draft decree published indicates that online platforms must also provide the amount of revenue obtained in transactions conducted with French users when they are subject to French VAT.  

The penalty regime associated to the absence of compliance of the potential obligations under this draft could attract a penalty equal to 5% of the understated or undeclared revenue.

The aim of the French Tax Administration is a higher involvement of Digital Platforms as key economic actors in addressing VAT fraud in the transactions affected by such directive, a movement that started strongly few years ago in the Latin-america region for instance.


This revenue information required, together with the DST reported information could be used also for Corporate Tax Permanent Establishment review purposes, and for strong indiciary profit attribution determination during a tax audit.  

The international landscape of reporting / cooperative obligations for Digital platforms is becoming more and more complex, onerous and fragmented with relevant differences of the platforms “in-scope” of these obligations.

A balanced discussion on this topic should happen also soon on a coordinated international basis as these requirements are affecting new business model digital platforms, as well as payment intermediaries or telco providers, depending on the side of the world we are.    

US Cloud-computing & digital content taxation proposed Regs

Recognizing that current internal regulations affecting international transactions are prepared to cover computer program related transactions but not cloud related ones, the IRS released for comments during mid-August a proposed regulation to cover Cloud-computing and digital content transactions.

The definition of Cloud Transaction is that through which “a person obtains non-de minimis on-demand network access to computer hardware, digital content, or other similar resources”, and according to the draft on top of the SaaS, PaaS, and IaaS the definition should also apply to digital content streaming and access to information in certain databases.

The mere download of digital content for storage/use on a person’s PC/Hdw would not be considered a cloud transaction.


The proposed Regs set that a cloud transaction is to be classified either as a lease of property or as a service, and when a transaction might have elements of both, when there is a majority of the factors to classify a whole transaction in one or the other, such transaction is ideally not to be bifurcated in 2 categories but classified in its entirety as one, unless there are specific reasons for that.

In some cases, it would be needed to separate however cloud transactions from lease of a copyright article (Software).

For purposes of administrability, not transaction will be classified separately if it is “de minimis”.


There are 9 factors for a cloud transaction to be considered Service versus a Rental; the most relevant 3 under our perspective are:

  • Not being in physical possession or control of the property.
  • Provider having the right to determine the specific property to be used
  • Provider charges on a pay per use basis, and not by mere passage of time


The proposed regs take the chance to also clarify the source of income for revenues consisting in the transfer of copyrighted articles or from user download of software, stating that in this case the sale is deemed to occur at the location of the download, and when no available info at the location of the customer according to financial/accounting systems.


Despite the incandescent debate on Digital Services Taxes and the potential global consensus solution being worked out at OECD level, many medium and big size multinationals but also startups are facing the need to define tax consequences for their current transactions on a daily pragmatical basis.  So, any effort to provide light in this cloud related transactions area is very welcome as cloud becomes mainstream in value generation for many industries, groups and industries.

The spirit behind this regulation points to consider cloud related transactions as services most of the times, which would rule out (from US internal regs perspective at least) a withholding tax, facilitating the digitalized economy evolution. But the same issues around individual unilateral measures that surfaced on DSTs will apply here.  Are all countries willing to move to a WT free under the treaty service consideration conclusion?

Global consistency should be a must specifically in this area.  

There is not no mention in the draft to define the source of income country for potential Cloud computing transactions. This should be addressed as for many groups it is likely that there will be one payer but many cloud transaction user locations.

The draft should clarify if these rules are going to affect other services that are Cloud delivered, on top of video and images streaming like Financial Services, Web based apps, news online, web services around other types of content, API services flows etc.., and the rules to work around the “de minimis” concept also incorporating this additional service dimension.

Mexico traces its own plan on Digital Platforms taxation

After the previous 2018 try to pass a 3% Digital Services Tax in Mexico that was not passed by the Congress, the President’s political group filed a new proposal of Law in late August 2019, this time focused in Digital Platforms.
The bill requires foreign and national Digital Platforms to be registered as tax payers for both VAT and Income Tax purposes when they are providing
intermediation services for electronic commerce purposes. Accounting books of such taxable presence will also be required, as well as a local legal
representative, constituting all in all a kind of complete Permanent
Establishment figure.

The draft defines technological platforms as intermediaries that allow the exchange of goods and services to the final user or between users and supplier, facilitating the selling process while using electronic payments mainly.
The bill opens the possibility to apply a withholding mechanism for the payments of these intermediation platforms and providing a registry for digital platforms to calculate and pay their respective tax, but does no mention to the method or process to achieve it.

DET3 Comments

Discussions are to be hold at the high chamber yet, but is clear that the second largest Latin American economy is determined and taking individual steps and actions forward in parallel to the current OECD efforts at supranational level.

Departing from a DST transactional based approach, their idea is a more structural capturing of complete tax establishments of foreign digital companies. A profit allocation would be then required, and additional indirect tax compliance obligations will be bounding these companies, with potential extra costs passed to the final consumer in specific cases. The taxable presence triggering connection points are to be seen.

This would come on top of the new obligation some sharing economy platforms have since last June 2019 to withheld part of the money that flows through them in concept of VAT and Withholding Tax to their users.
The Government is setting serious focus into this as the penalty regime would contemplate a disconnection of the platform from the internet for local purposes if the tax requirements are not met, a measure whose legality would need to be analyzed.

The post 2019 summer new reality is that a significant part of the WW GDP, in the hands of Mexico, Brazil, Argentina amongst others in Latam, of a few relevant Asia Pacific countries, and of many European ones and the UK are preparing themselves to go-live locally and unilaterally soon. The puzzle of different local technical direct and indirect tax measures on top of the different compliance patchworks is something complex and deeply concerning for any international company.

The international tax system is in a tremendously stressed situation so the
pressure bar for the OECD to reach horizontal wide consensus in this difficult landscape is rising to very sensitive and loaded levels.

As more and more industries get digitalized at the same time the early signs of recession unripe, the impact of this situation in international trade and international collaborative business can be critical and deeply negative, especially for some of the new ecosystems that are being formed by players of different industries starting to compete in co-related ones through technological value propositions.

Mexico is a large country from a digital platforms user base perspective, so it is to be observed the reaction of the US relevant trade counterparty to this development. Are we to see the Maquila industry representatives drinking red Burgundy wine?

Wine & software in the Digital Services Tax table for a long round

The new French Digital tax prompted a threat of retaliatory action from the US. The Office of the United States Trade Representative quickly launched a so-called Section 301 investigation in July into whether the law amounts to unfair trade practices.  Trump went further in a press conference, threatening with a retaliatory tariff on French wine unless the French government backed off the unilateral digital tax.

US tech industry representatives have labelled the French DST as both unfair and a violation of trade agreements.

But officials from France and the United States seemed to have reached a compromise on the recently introduced DST. Le Maire told French that “After Biarritz the threat has receded.”

Details of the agreement are to be known, but the main lines could be around France repaying companies the difference between its digital tax and the result of any solution to be proximately defined by the OECD or for France to issue a kind of tax credit to digital companies for the difference between the French tax and any final solution ultimately drawn up by the OECD.

Macron also confirmed that when the new OECD common regime is passed, “If and when that happens, France will do away with its national tax”.

The G20 finance ministers agreed to a roadmap of the new tax plan in May, with the hope of a new agreement being signed by leaders in 2020.

French Finance Minister said that avoiding Section 301 “was at the heart of the accord” that seemed to happen during last G7 meeting.

But While US Treasury Secretary informed on September 9th that “trade talks with France are going well and that the administration is reaching out to industry groups on digital tax proposals over the coming weeks”, the reality is that his country is still moving forward with the Section 301 Trade investigation on the French DST.

It is not clear it that is because of a bureaucratic formal need to continue the process as both parties continue saying they are working closely to resolve this but no formal manifestation from the US Government has been shared recently.  It can be a potential US strategy to win time until the US understand the main block-countries reactions to the shortly to be proposed OECD solution, before closing the 301 procedure.  

In any case, wine makers and software developers are unexpectedly face to face in the same arena, illustrating once more the difficult balance between economic, political, and technical decisions these days in the international trade context.

Disecting the UK Digital Services Tax July regulatory package

The UK Government published last July a draft version of their Digital Services Tax regulation, as part of a package containing also the Government response to the key questions from public consultation observations, and a document with additional Guidance and explanations.

The text evolved the approach of taxing business models to taxing digital services activities, which is still a concept wider than a specific digital service.  The revenue to be taxed is that of the relevant activities when deriving from a UK user contribution (engagement or interaction).  

Digital services activities in scope:  

Social media platform”: online platform whose main purpose, or one of the main is to promote interaction between users  and that enables content to be shared with other groups of users.

Online marketplace”: online platform whose main purpose, or one of the main purposes is to facilitate the sale by users of particular things to other users, or to advertise or otherwise offer to other users particular things for sale.  An exception for Financial Services e-marketplaces is in the text.

In this context, “thing” means any services, goods or other property; and the  reference to the sale includes hiring it.

“Internet search engine”

Additionally, there is now a new definition affecting the 3 type of digital activities, which is carrying on any associated (to those) online advertising business.

 The revenue is attributable to UK users when:

·        The advertising is intended to be viewed by UK users or when it arises in connection with UK users

·        The online marketplace revenues arise in connection with a transaction to which a UK user is a party, or with the sale of an interest in premises or land in the United Kingdom, or includes the provision of accommodation in the United Kingdom  

An additional nuance introduced for online advertising revenues is that it includes both revenues from the provision or the facilitation of online advertising;

Annual DST Threshold

Total amount of digital group services revenues exceeding £500million, AND

total amount of UK digital services revenues of the group exceeds £25million.

DST liability calculation

 The total amount of UK digital services revenue of the group, will be reduced in £25million before applying the  2% tax rate.  The net result is “the group amount” to be paid, whose liability will be allocated to each group legal entity that obtained the revenue.

In the case of e-market places, 100% of the DST liability is to be paid if the other user of the transaction is in a country with no DST or equivalent in place. In case there is, there is a relief that disregards 50% of the obtained revenue.

 Alternative basis of DST Group liability calculation, as a safe-harbor

A new element is that the tax payer has the option to chose an alternative way of computing the tax liability instead of the standard one, an can opt activity by activity (all, part, or none). This is for the case any of the in-scope activities of the group has a compromised profitability or is loss making.

It requires first a breakdown of the UK digital activities services revenue and apportioning it between the 3 categories, discounting to each one its relevant proportion of the £25million threshold.  It requires also the operating margin of each activity in scope.  Then, the taxable amount for each revenue category is 0.8 times the operating Profit.

For using this computation, a group must logically be able to segment the relevant operating expenses per category of revenue, excluding interest expenses, business acquisition expenses, extraordinary items, assets impairment charges, taxes.

For any other category of revenues not opted-in, the taxable amount remains 2% of the net  revenues.   

Compliance, data source and timeframe

UK DST is due and payable on the day following the end of 9 months after the end of the accounting period. The responsible member to pay the DST is the parent of the Group unless any other legal entity has been nominated by it by written.

Accounting base for the DST:  Any reference to a group’s accounts is to the consolidated accounts of the group’s parent and its subsidiaries.

The “applicable accounting standards” are those governing the group accounts, (UK GAAP; US GAAP;…. otherwise, IAS.

Anti-avoidance rules

The draft contains anti-abuse rules, and any “relevant avoidance arrangements” or scheme or series of transactions will be amended or disallowed by HMRC if their main or one of their main purposes, is to enable a person to obtain a tax advantage (avoidance, reduction or deferral)  in respect to DST application.

There are a good number of additional enforcement and control rules in the July 09 draft text.


Despite the international political turbulence, the work under this UK DST regulatory draft package is deep, indicating a strong behavioral intention to pass it and enforce it.

The introduction of a main activity test that can be interpreted from the definitions is something logical and that we have been claiming for other countries unilateral regulations.

The draft seems more detrimental in terms of Digital Advertising than the rules of the EU draft directive because of the inclusion of the “associated online advertising activity revenue” of the 3 activities as in scope and the incorporation of the intermediary roles revenue in the saturated and big WW Adds value chain.

The inclusion of renting as comprehended by the definition of sale of a thing in the online market places case might affect many new and disruptive digital value propositions based on subscription or flexible consumption models that work cross-border.

The thresholds are indicative of a targeted approach and a commensurate with compliance effort approach for the taxpayer and more logical than those of other unilateral drafts.  

The allowances and reliefs included are addressing some of the concerns expressed by the stakeholders during the recent consultation and are contemplating a good number of the potential cases around, with practical explanations included.

Will we see a Bush Administration counter-act to this close allied initiative? Is the UK Gin the new French Borgona? Or does the pharma UK sector need to put an eye on the conversation?  An interesting period ahead.  


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.