Introduced as a temporary measure designed to deal promptly with one of the main challenges faced by international tax law - coping with an ever changing modern economy - the French Digital Services Tax (the “French DST”) was recently adopted by the French National Assembly and is still subject to approval by the French Senate.
Based on the current draft, the French DST would take the form of a 3% tax on turnover generated by certain digital services provided by large companies (defined with cumulative thresholds of €750m of taxable services provided worldwide and €25m of taxable services related to France).
The French DST is targeted at approximately 30 taxpayer groups and applies only to certain services (marketplaces, digital advertising and transmission of personal data).
The restriction of the French DST to large players, justified by a non-comparability between large groups and small ones, could be viewed as discriminatory, raising doubts as regards its compliance with higher legal standards. In particular, its compliance with French Constitutional Law and EU Law is questionable (notably in view of the Freedom of establishment and the Freedom to provide services guaranteed by the TFEU).
Furthermore, it may not comply with the provisions of France's tax treaties.
The French DST would apply on turnover realized as from 1 January 2019, with a first instalment due by the end of 2019 (based on 2018 figures). The French DST will be deductible for French corporate income tax purposes. Further guidance from the French tax authorities is still awaited.
The restriction of the French DST to large players... could be viewed as discriminatory