Digital Services Tax in France

The Digital Services Tax (DST) has been dubbed the “GAFA tax” (an acronym of the main US targets: Google, Apple, Facebook and Amazon). However, contrary to what this acronym suggests, the French GAFA tax not only targets US groups but other international groups including French, Chinese, German, Spanish and English groups. Indeed, the French tax administration has estimated that around 30 international groups are impacted by this tax.

Since the GAFA tax came into force on 1st January 2019 in France, the GAFA tax has brought in €375 million euros to the French Treasury in 2020. The French treasury expects the DST to raise €358 million in 2021 and €518 million in 2022.

On 23rd and 30th March 2020, the French tax administration published modified guidelines on the scope of the GAFA tax and more precisely on the services that can be considered as taxable.

In July 2021, the G20 group reached an agreement concerning the international tax. However, as the agreement is not yet implemented, the French Minister of Economic Affairs has stated that the DST will be maintained in France.

In that regard, the French administrative guidelines on DST are still binding on the FTA.

A company will be liable to pay the DST if the following four conditions are met:

• A taxable service must be identified;
• The taxable service must be located in France;
• The taxpayer must collect revenue in return of a taxable service; and
• The digital services will be taxable if certain thresholds are met.

The French tax authorities have provided detailed comments on these four conditions.

We will focus on the two first conditions which are more complex.

The two categories of taxable services

The scope of the French GAFA tax relates to the value of digital services supplied in France. The business activities falling within the scope of the DST are:

1. The supply of a digital platform: allowing users to interact with other users notably to facilitate the direct provision of goods or services between users.

The digital intermediation services are subdivided in two subcategories:

a) marketplaces that cover websites through which users can carry out transactions; and

b) networking services (without any underlying transactions).

Regarding these digital intermediation services, the French tax administration has provided objective criteria under which the relevant services can be considered as taxable under the DST. The existence of a digital interface or the accessibility of the services by means of electronic communication can be used as objective criteria to identify these taxable services.

Some services are excluded from the scope of these subcategories. For instance, where the digital interface is used to manage specific regulated financial systems and processes such as a payment settlement, the supply of the digital platform is not considered a taxable digital intermediation service. Other specific services such as communication services, or payment services are also excluded from the DST scope.

2. The supply of services to advertisers: these services aim to place on digital platforms targeted advertising content which is generated by personal data collected on digital platforms.

In terms of services to advertisers, there are also two sub-categories:

a) advertising placement services that are not limited to transmit data for the purpose of broadcasting advertising messages; and

b) user data transmission services that are only limited to transmit these types of data.

Please note that the existence of a digital interface is a common requirement for both digital intermediation services and supply of services to advertisers.

Taxable services deemed to be located in France

A taxable service will be deemed to have been provided in France if a user has access to a digital platform in France during the relevant year. In this regard, the user will be considered as located in France.

The administrative guidelines provide examples of digital platforms. A digital platform can be a website, an application used on cell phones or on TV.

For each service considered taxable, a national presence ratio must be determined based on the location of users in France. Each taxable service has its own ratio. The tax qualification of the taxable service under the subcategories is therefore important for the computation of the DST due.

Payment of the DST

The company liable to pay the DST will pay two instalments one in April and the other in October. The amount of the instalments is at least equal to the half of the DST paid the previous year. Any balancing payment is due in April following the year of payment of the instalments.