Understanding the essence of the taxation of digital giants: The case of France,

In the form of a 6 points overview, the main elements to remember from the taxation of digital giants, in respect of their supranational activities, are briefly developed below. The example of France is given by way of illustration.

1-The taxation of digital giants:

The principle of this taxation is that the digital giants pay taxes where they produce value and not where they are physically present. This tax is not applied to profits but to the company’s turnover. Austria has been a pioneer in digital taxation in Europe. The Austrian tax entered into force on January 1, 2019. It amounts to 5% of the advertising revenue of companies with more than 750 million euros in annual turnover, of which 25 million in Austria. It brings in nearly 200 million Euros per year.
India is the first country to have legislated in this area, by instituting, in 2016, a tax on advertising revenue collected by digital giants, then in 2018 by establishing the concept of “digital permanent establishment”. Rather than paying taxes in countries where companies have a physical presence, it would make more sense for them to pay taxes where they produce value.

2-Tax applied to digital giants in France provided by the French law of July 24, 2019:

The tax introduced under this law is inspired by the European Commission proposal for a directive on the common system of tax on digital services. This law of July 24 brings amendments to the French general tax code, in order to integrate the taxation of internet giants.

3-This digital taxation in France will be, as is the case in Austria, applied to very large companies which have a worldwide turnover on their digital activities of 750 M € at the global level and a turnover in France of more than 25 M €.

4-Unlike the classic corporate tax, the digital tax is not applied to profits but to the company’s turnover. For companies that pay corporate tax in France, they will be able to deduct the amount of this tax from their tax base on profits.

5-Concretely, each company will be required to define its digital turnover in France, then to declare it to the tax authorities. This tax is therefore declarative, for Google, Facebook and others to calculate their own coefficient of digital presence themselves. They are obviously exposed to a tax audit in the event of a reduction by the Ministry of Finance.

6- The tax does not target the entire turnover of digital companies:

Indeed, it focuses on the three activities that generate the most value: These are revenues from online advertising, the sale of personal data for advertising purposes and the so-called “marketplace” activity. For example, a bookseller or an individual sells a book for 20 euros on the Amazon site. If it finds a buyer, Amazon will deduct 15% of the amount of the transaction for “selling costs”, or 3 euros. This giant will then pay the 3% tax on the 3 euros earned in intermediation.

(*) Youssef Diop is a Telecoms and ICT consultant.