Title France's Digital Services Tax
Database Library Publications
Date 09-08-2019
Source FlagPost
Author MASLARIS, Andrew
Citation Id 6852274
Cover date 9 August, 2019
Enrichment CDRG
Key Item Yes
Major subject Company tax
Electronic services
International taxation
Multinational corporations
Minor subject Australia overseas comparisons
Pages 4p.
Text online yes

France's Digital Services Tax

France's Digital Services Tax

Posted 09/08/2019 by Andrew Maslaris

France recently became the first major European economy to legislate a Digital Services Tax



resulting in the following response on Twitter from US President, Donald Trump.

France’s DST imposes a three per cent cash flow tax on the French revenue of large

multinationals that provide digital advertising and digital platform services, such as Google,

Amazon, Uber and Facebook. While the US is strongly opposed to the tax, a number of

European countries have indicated their intention to introduce a DST in 2020. This Flagpost

discusses the broader implications of France’s actions and Australia’s current position on a


The difficulties posed to tax authorities by the digital economy

France’s DST is a response to the challenges that the digital economy poses for tax authorities

around the globe. Of particular concern is the ability of large tech companies to facilitate, or

provide, a service in one location but to recognise the revenue from that transaction for tax

purposes in another location (usually with low rates of tax).

The Australian Treasury has raised concerns

about the suitability of the current international tax

framework to:

… properly capture the value to digitalised businesses of the participation of users, the

provision of personal data or user-created content. For countries with large numbers of

users but few highly digitalised domestic businesses, there is an increasing prospect of

tax revenues diminishing as foreign, highly digitalised businesses replace traditional

business activities.

For more information, see the 2019

Parliamentary Library

Briefing Book



taxation and the digital economy


International developments concerning taxation of digital services

Following the finalisation of the

OECD’s Base Erosion and Profit-Shifting (BEPS) reports


2015, the G20 tasked the OECD in 2016 with undertaking further work on the tax challenges

arising from digitalisation. In March 2018 the

OECD’s Interim Report

noted the need for

consensus-based longer term tax reform.

The OECD also recognised that some countries wanted to take more immediate action and

issued a framework

to guide the introduction of an interim DST, broadly based on


Equalisation Levy

(2016) and a similar

European Commission

(2018) proposal.

However, the OECD noted it is important that countries follow the framework, as it recognises

complexities like double taxation, compliance with international trade rules and the risk that


tax may ultimately be borne by consumers

. The OECD noted that it expected countries would

remove any DST’s once a longer term solution was reached.

The OECD is due to release a Final Report in 2020, including recommended long term solutions

for taxing the digital economy.

France has long been concerned about the digital economy

From as far back as 2014

France has been highly active in the digital taxation space. In 2017 it

called on the

EU to develop a Europe-wide Equalisation Levy


In December 2018 France


it would introduce a DST. France’s Minister for the Economy and Finance,

Bruno Le

Maire, said at the time:

Paris would only change course if a better deal for taxing the firms could be agreed



Nobody can understand either in


or the US that the internet giants do not pay the

same level of tax as other private companies – 14 points less taxation for the digital giants

compared to the other private companies, including the SMEs [small and medium


What is France’s DST?

Being broadly based on the

European Commission’s (EC) DST proposal

, France’s DST applies

to companies that have worldwide revenue of €750 million


digital services revenue

generated by French consumers of greater than €25 million. It applies a three per cent tax on

sales revenue (exclusive of VAT) from online intermediation services and online advertising

‘made or supplied in France’ (where the user is located in France or the account accessing the

service is opened in France). However, the DST does not apply to intermediation services used

to provide only digital content, communication services, payment services, banking services and

inter-group services.

It has been estimated

the DST

will apply to 30 companies

and raise around €500 million a year.

The US strongly opposes the DST

The US strongly opposes DST’s and views them as a targeted attack on the profits of US

businesses. The White House has

launched an official investigation

into whether France’s DST

violates existing trade agreements or unjustifiably or unreasonably burdens US commerce. If it is

determined that it does,

the President

may impose retaliatory measures against France.

A number


US media outlets

and the

Harvard Business Review

allege that France’s DST

discriminates against US firms and could create a new ‘trade war’.

It has also been reported


that the US has ruled out a free trade deal with the UK if it

proceeds with

its proposed DST


Other countries are considering a DST





have implemented versions of a DST, France is the first country to do

so since the release of the OECD’s Interim Report. Following Europe’s failure to reach a

consensus on a DST, a

number of European countries

have indicated their intention to introduce

a DST, including


, the

Czech Republic

, ,







the UK

. The actions

taken by these countries are summarised in the table at the end of the Flagpost.

What’s next?

As discussed in the

OECD’s Public Consultation Document

, the OECD is currently focusing on

two work-streams ahead of releasing its Final Report. The first is adjusting tax rules to allow

greater recognition of user-created value in allocating tax rights between countries—potentially

increasing taxes payable in countries where value-adding users are located. The second is

creating a global minimum tax (GMT) applying to all taxpayers (not just digital businesses),

allowing countries to tax amounts not sufficiently taxed in a taxpayer’s home country, and to

deny deductions for cross-border payments that were undertaxed.

While the above measures do not represent a consensus view, and may not be reflected in the

OECD’s Final Report, there appears to be some momentum behind a GMT, with

the G7

reportedly broadly supportive

. The position of the US and China is unclear.

What does this mean for Australia?

On 20 March 2019

the Australian Government announced

that following a

consultation process


it would focus on pursuing a long-term consensus solution at the OECD, noting

overwhelming stakeholder support for this option and that many stakeholders:

… raised significant concerns about the potential impact of an Australian interim measure

across a wide range of Australian businesses and consumers, including discouraging

innovation and competition, adversely affecting start-ups and low-margin businesses, and

the potential for double taxation.

France’s decision to implement a DST does not appear to have changed the Government’s


It is also important to recognise that any proposal to change the international taxation framework

may have more far-reaching implications for Australia. For example, the

Minerals Councils of


has warned that modifications to profit attribution rules to recognise user-created value

or demand, may encourage other countries to argue that they are entitled to tax a share of profits

from Australia’s natural resources as those profits are partly attributable to demand generated in

their countries. However, it is worth noting that a number of countries

already generate

substantial tax revenues

on the importation of Australian commodities or


import duties




APPENDIX A: Recent actions on DST




In April 2019, a draft Bill was released

, with a proposed start date of 1 January 2020

and a five per cent tax rate.


In January 2019,

legislation was introduced into Parliament

proposing a three per cent

DST broadly based on the EC proposal.



A seven per cent DST was

announced in April 2019



legislation was released in

July 2019

. It has been


the DST will raise US$220 million a year.


While Denmark previously opposed

a DST,

Reuters has reported

that the new Prime

Minister Mette Frederiksen stated in 2018 that if elected she would introduce a DST.


In 2014,

Hungary implemented a tax on digital advertisements published in Hungary

or in the Hungarian language

. The tax was

amended in May 2017, following an EU


, but continues to be

challenged by the EU



for breaching EU anti-

discrimination rules.



Equalisation Levy

was implemented in 2016, imposing a six per cent tax on

revenue earned from the provision of online advertising services by non-residents.

From June 2016 to March 2017 the Levy raised approximately US$47 million.


Italy first proposed a

Levy on Digital Transactions

in 2017. It was re-announced in the

2019 Italian Budget, but

has been further delayed

. The Levy is broadly based on the

EC’s DST, levied at a rate of three per cent, and expected to raise €600 million in 2020

and 2021.


Poland supports the EC DST proposal. In May 2019,

Poland’s Deputy Finance


stated that Poland aims to introduce a DST from 2020.


A preliminary draft Bill

based on the EC’s DST proposal was released in October 2018

proposing a three per cent DST. Following public consultation, the Final Bill was

published in January 2019.

It has been estimated

that the DST would raise €1.2 billion

a year – but this estimate has been

queried by the European Commission




The UK released position papers on the digital economy in




. In October

2018, the

UK’s 2018 Budget

proposed a two per cent DST from 2020. In July 2019, the

UK announced the DST would be legislated in the Finance Bill 2019-20


Further information on the positions of various countries (including those outside of Europe) can

be found in KPMG’s,

Taxation of the digitalised economy

. However, it should be noted that this

is a fast-changing issue and some countries have changed positions in the last twelve months.