Interview with René Serres (*) on taxation in the digital age

This interview was conducted with Mr. René Serres, telecom and ICT consultant, on the subject of taxation in the digital age. We would like to sincerely thank him for this contribution which will probably light up the lantern of our dear readers, with regard to the subject dealt with.

1-Question from Lte magazine: Today, in certain countries such as France, a declarative tax is applied on the turnover of digital giants, although they are not present on the French territory. As such, France collected 375 million euros for the year 2020. Question: Taxing a company on its turnover that it generated via the internet in a country where it has no registered office, does it comply with French tax law, if we take this country as an example?

Response from Mr. René Serres: The notion of permanent establishment is very important in French law, as well as in international tax conventions, insofar as it is decisive in the context of the attachment of an economic activity to the French territory as well as with regard to the taxation of this economic activity in that country. French tax law seems to be evolving, in parallel with the law of July 24, 2019, relating to the taxation of digital giants. As a reminder, it should be noted that the notion of permanent establishment in tax law is decisive because it means the attachment of an economic activity to the territory of a given country, and thus, of the taxation of this economic activity in that country.
But it should be remembered that in the country of Molière we have already taxed, in the past, the radio stations of Monaco and Luxembourg, which broadcast advertising to populations residing in France, but in border areas bordering these countries, without these radios having a head office in France.

2- Question from Lte magazine: Nowadays, social networks are places where you can buy or sell products or services. Some of these transactions are done informally. In your opinion, what should or can be done to regularize these transactions for tax purposes?

Response from Mr. René Serres : Normally, when a natural person earns income on the internet, by selling goods or services, he must mention the income generated by these transactions in the tax return. On the other hand, if it is a business, which markets goods or services with the objective of making income online, the income generated is taxable and must appear in the annual declaration.

3- Question from Lte magazine: In the field of telecoms, we often talk about the non-application of double taxation between companies when there is an agreement between two countries concerned. Question: what is the scope of the double taxation avoidance? That is, how it could be brought into play in practice?

Response from Mr. René Serres: The principle of non-double taxation is provided for by the conventions signed by two countries in a bilateral framework, such as for example between France and Morocco, or by several countries in a multilateral framework, such as for example the UMA.
The objective of these conventions is to avoid the double application of a tax on the income generated by companies. That is to say in the country where the company resides and, in the country, where the service is provided. In practice, a foreign company belonging to country A which performs a service in country B obtains from the latter country a tax credit for withholding tax. This credit will be deducted from the taxes payable to country A from the company, in accordance with the aforementioned convention. The withholding tax is generally a percentage of the corporate taxes (in Morocco, for example, the withholding tax is about 10% of the corporate tax). Non-double taxation is for example applied to roaming revenues, using the principle of withholding tax.

4- Question from Lte magazine: The OECD recently took a decision to set the minimum corporate tax at 15%. Do you think this is enough to fight tax havens? Because, as we know, we can promote tax havens by other taxes and charges such as local taxes or other advantages?

Response from Mr. René Serres: Yes, this is a very important question. The OECD is a multilateral framework where negotiations are sometimes very tough. It is true that there are many things that can be done to avoid various tax havens. There are several cases in the OECD on this subject, but some countries, notably the United States, could not go further. President Joe Biden has struggled to concede this 15% minimum tax. As a reminder, let us recall that corporate tax is 34% in Belgium, against 12.5% in Ireland, where it even drops to 10% in free zones. This is why some large multinationals are setting up in Ireland. This is something that seems to have prevented Trump from complying with this 15% minimum tax. In fact, the OECD is still debating the introduction of a tax on the internet giants. Moreover, France adopted the law of July 24 setting up the digital tax, while waiting for the decision of the OECD. France will undertake to overturn this law, once this organization would decide on the matter.
Therefore, the French GAFA tax will only be applicable on a temporary basis and will be removed once an international approach to the OECD, on the taxation of digital services, is put in place. In this regard, note that for reasons linked to economic interests, some countries, such as Ireland and Luxembourg, reject the idea of taxing digital activities on a European scale.

5- Question from Lte magazine: VAT is also applied to all purely financial transactions. Why are transfers to special accounts, opened at the ministry in charge of finance in Morocco, exempt from this tax? For example, this is the case with the contributions of Moroccan telecom operators to the Universal Service Fund, which is tracked in a special account.

Response from Mr. René Serres: At first glance, it seems that the payments for the universal service would not be made in return for a service provided by the telecom operators, and therefore the operative event at the origin of the payment of the VAT, does not exist. I think that in the case of payments to the account of the ANRT (National Telecoms Regulatory Agency), they are subject to VAT, since they remunerate a service, in particular that of the production of standards by the ANRT (standardization), in addition to training. For the others, they are considered as payments, knowing that this type of movement is subject to the payment of VAT. Otherwise, someone who has sent money to another person has to pay VAT. The payment of this tax is closely linked to the existence of a production, of a service, and therefore of an operative event.

6- Question from Lte magazine: What can we say, in general, about taxation in the digital age? :

Response from Mr. René Serres: Let’s say in short that apart from the fact that certain activities on the Internet are currently exempt from taxes and duties, digital technology only represents benefits for the tax administration in countries where progress has been made in the digitization of the economy.
Today, if we take Morocco as an example, all taxes and fees are paid on the internet. Moreover, the tax Directorate in Morocco has significantly improved the level of collection of tax debts, thanks to digital technology (source the activity report of tax Directorate in Morocco: https://www.finances.gov. ma / Publication / dgi / 2021 / Fr-Rapport-activiteDG2020.pdf.).
Lte magazine: Thank you very much Mr. René Serres.

(*): René Serres is a telecom and ICT consultant
This interview is carried out exclusively with Lte magazine.