French DST Administrative Guidelines analysis

Last March 23RD,  2020, the French  tax authority published administrative guidelines containing additional instructions to comply with the 3% DST that is in force since January 1st, 2019. The document is subject to public consultation for 30 days and provides guidance to complete the submission obligations that are part of the law.

The guidelines refer to each of the Services in scope:

Marketplaces | Other intermediation services | Targeted Advertising | Transmission of user data.

Key elements covered in the guidelines are:

  • the definition of taxable services, indicative examples
  • the territoriality rules
  • the thresholds computation
  • how to calculate the DST amount due

Relevant points extracted from the document:

  • A digital interface is any software enabling one or more users to both send and receive information.
  • The level of the market of the transaction (B2B, B2C, Peer to peer, B2B2C) it is irrelevant for being in or out of the DST French regs.
  • Digital interface definition includes any software that allows one or more users to send and receive information at the same time and seems this might include digital interfaces that allow users to publish content accessible to other users in some circumstances.
  • The absence of generation of network effects on a large scale has no effect on the characterization of the potential taxable service.
  • On computation of the tax, it is specified that the taxable amounts consist of all amounts paid by users of the specific digital interface.
  • Digital intermediation exists when a digital interface is made available by means of electronic communications, which allows users to contact and interact with each other, even on an anonymous basis.

    “Contact and interaction” is understood as the reciprocal exchange of information between users (transactions, content publication, different exchanges….).

  • Indicative non-exhaustive list of marketplaces:

    Exchange marketplaces.

    Digital interfaces technically enabling:

    • Merchants to sell goods / transportation providers / restaurants to deliver prepared meals and hotels to offer room bookings.
    • Individuals sharing the use of goods or services, provided it gives rise to a transaction through the interface (cost sharing).
    • Individuals to buy or sell goods or provide each other services for payment.
    • Mobile Application or software publishers, including gaming.
    • Right holders to distribute works to the public like video or music.
    • Travel agencies to book transport services/tickets and also include the EU regulated CRSs (Computer Reservation Systems = Software) that are qualified as “technical interfaces” because of “technically enabling users to carry out transactions relating to the supply of goods or services”.

      It is to be noted here that a CRS is just a software (lines of code) that enables the real time electronic transmission of the airlines “books of tariffs and schedules” and the automation of the administrative part of the bookings/reservation.

      The legality of qualifying a “transactions processing/automation” software that is licensed to the travel agencies (the intermediating party) as a “marketplace” is something that should be revised, especially when the ad-servers technology in programmatic advertising (which is the technological systems for automating the exchanges between the relevant intermediating parties in the digital advertising spaces) has been left out of scope.
  • Online multiplayer games are also included regardless of the access mode.
  • A digital interface operated by a Company to sell its own goods or services, without permitting transactions between users, does not fall in the definition.

Connection services marketplaces:

  • Social Networks
    • Services publishing ads that permit exchanges between sellers and potential buyers, but transaction cannot be concluded via de interface.
    • Services bringing interests together (job seek sites, dating sites….etc).
    • Reviews share sites.
    • Services enabling users to share or exchange digital content.
    • Services enabling users to play together.
  • Indicative non-exhaustive list of taxable advertising services:
  • Directories, announcement websites, or websites comparing commercial offers, goods or services or internet links, when they are remunerated by the party promoting these offers/links and offers are presented based on data the user has provided.
  • Downstream services in the programmatic advertising value chain segment when providing any tech solution allowing:
    • Real time buying of advertising space (demand-side platforms)
    • Dynamic display of advertising messages (demand side ad server)
    • Access data collected from users of digital interfaces to target the purchase of advertising space (data management platform)
    • Real time measurement of advertising messages performance (ad verification services)
  • The publication of web announcements by the owner of a digital interface, like a job posting, or self-branded content, is not regarded as digital intermediation but might be qualified as targeted advertising service.

  • 3 Conditions for a taxable advertising service to exist:

  • Their positioning in the advertising value chain:

    The services have to be sold to advertisers or their agents.
    In scope are services sold to an advertising network, a media agency or an intermediary trading desk in the purchase of programmatic advertising as long as they are not integrated in a platform for automating the purchase of advertising space (demand-side platform).
  • Placed on a digital interface.
  • Targeting conditions: must be targeted on the basis of data which concern the user viewing the digital interface and have been collected or generated during the viewing of digital interfaces.  This wording seems to rule out the very generic digital advertising that is addressed to any visitor of a website.
  • Out of DST scope digital interfaces:
  • Making primarily available digital content, communication services (instant text messages, voice messages, video messages or emails except when integrated in social media or marketplaces) or payment services to users (except in a marketplace, where the payment service is not its primary purpose).

    Digital intermediation if happens in the interface, must be ancillary.
    Supply of digital books, press articles, audio-visual works, databases or other digital content is not taxable regardless the technical arrangements of the interface or the economic conditions, even when users share their opinions.
  • Managing financial services. Interbank settlement systems, trading venues and trading systems of systematic internalisers. Multilateral Trading Facilities (MTF), subject to the most stringent operating rules. Organized Trading Facilities (OTF). Crowdfunding activities.
  • Services enabling the acquisition or sale of services for the placement of targeted advertising messages, in particular Automated Programmatic Advertising platforms (ad-exchanges, supply-side platforms and demand-side platforms), or technological platforms used by advertisers or producers of advertising space to host and distribute advertising creations or inventories (Ad-servers).  
  • Exception for excise goods. Amounts having a direct and inseparable link with the consumption of:

    • Energy products or electricity
    • Alcohol and alcoholic beverages
    • Manufactured tobacco products

DST attribution rules

A taxable service is provided in France if, during the year, at least one user of the digital interface is located in France according to specific rules defined for each of the four categories of taxable digital services.

A user is deemed to be located in France when that user accesses the digital interface from a terminal located in France, as indicated by the IP address, the geo-location data, or any other media relevant data.

The French guidelines consider that a bundle of the above defined criteria together with information of the customer account in a digital interface are indicators providing a high probability of being correct.

The digital service in scope generated revenue must be adjusted through the application of a French users’ proportional coefficient. The Digital Presence Coefficient is the % representing the annual share of taxable services connected to France.

For marketplaces, this % is calculated as the ratio between the number of supplies of goods and services for which one of the users of the service is located in France (buyer, seller or both) and the total number of supplies of goods and services.

For digital advertising services, the % is determined according to the proportion of advertising messages that have been targeted to a user located in France during the taxable year.

Whether the user has actually viewed or clicked on the message is not relevant according to the guidelines. Therefore, a message that is “targeted” based in the parameters identified above has just to be “displayed” to count for the formula.


Something that calls our attention along the document is the several parts indicating that the important elements for the DST analysis is the technical (or technological) capacity of the interface, and that the determination of the taxable amounts is to be performed at the level of the taxable service, without paying attention to the present contractual arrangements or the economic terms / flows.

This approach departs for instance from the Spanish law approach that clarifies that in order to interpret the DST application you have to refer to these elements and the context, which seems to be a more logical approach.  

The lines between being a “technical intermediary” or just “enabling technology/software” versus a real economic intermediary or true marketplace are not easy to be drawn by just analyzing the technological setup.

The French Administrative guidelines document makes a very deep dive into explaining what is in and out of scope with specific and concrete digital interfaces activity examples. Once the examples are analyzed there is no doubt it captures in scope a significant number of digital activities and for sure the ones that were intensively monetizing, at least before COVID19 pandemic.    

Being the digital activities scope in fact that wide it is difficult to assert that the measure is targeting companies mainly from one given country as the US, although a key point for the US Section 301 investigation report concluding that the French DST deliberately targets US companies is the particularity of the 750M€ first threshold for global “in-scope” digital activities that leaves out or scope most non-US companies in their view.  

The French DST Guidelines document it is quite detailed, and it covers the interplay between the different cases in scope when applicable in the same company. The Digital advertising value chain is analyzed tranche by tranche to confirm what it is in or out of scope.

It becomes clear that in some of the cases in scope getting the information required for the compliance and the execution of the formulas in practice is going to be a difficult challenge.  

If every country passing a local DST is to develop its own interpretation guidelines based on texts already differing in several points, the compliance execution burdensome charge will be tremendous.

A global agreement on the digitalized economy in general is clearly needed.

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