France to introduce unilateral digital tax on 1 January 2019

Bruno Le Maire said that the new tax would be levied on three revenue streams: advertising revenue; commission income generated by online marketplaces when facilitating transactions between users; and income from the resale of user data for advertising purposes. The tax is anticipated to raise €500 million in 2019, although the rate at which it will be imposed has not yet been announced.

In a speech to the National Assembly (6-page / 229KB PDF), Le Maire said that he supported an EU-wide digital tax. However, he said that the French government intended to press ahead with its plans "no matter what" due to the lack of agreement among EU member states about how best to proceed.

"It is unsurprising, although still disappointing, to see France go it alone with their own version of a digital tax," said tax expert Eloise Walker of Pinsent Masons, the law firm behind Out-Law.com. "The problem businesses now face is that they will now have to have an eye towards two very different sets of rules - UK and French - all the while waiting for the EU to make up its mind about an EU-wide version which is different again."

In March, the European Commission published plans for an interim digital tax of 3%, to be charged on activities "where users play a major role in value creation" by companies which meet specified revenue and user number thresholds in an EU member state. This tax would apply until comprehensive changes could be made to the corporate tax framework to reflect the growth of global digital companies with little or no physical presence in the countries where their users are based.

However, the plans require the agreement of every EU member state. Ireland, Luxembourg and the Nordic countries are among those which have objected to the proposals as currently drafted.

The Organisation for Economic Cooperation and Development (OECD), which coordinates global tax policy, has said that it will try to come up with an agreed approach to taxing the digital economy by 2020. It published an interim report on the tax challenges arising from digitalisation in March 2018, but did not make any recommendations because there is as yet no consensus between OECD member countries on whether a tax response is necessary and, if so, how it should be implemented.

"The OECD had better hurry up," Walker said. "Other countries have been threatening to go it alone as well, and the global tax community runs the risk of increasing double taxation and uncertainty whilst it tries to get a consensus."

The UK has published proposals for its own digital services tax, which it intends to introduce in April 2020. It has proposed a tax of 2% on advertising revenue, commissions generated by digital marketplaces and social media advertising which is linked to the participation of UK users, where that revenue is above certain thresholds to be set at a level designed to exclude small businesses from the scope of the tax. The UK tax will be abolished once an "appropriate international solution" is in place, and will be formally reviewed in 2025.