On January 18, 2019, the French National Assembly (lower house of Parliament) Committee for European Affairs issued its position on the taxation of the digital economy. The Committee acknowledged that the OECD will not present a definitive solution on this issue until 2020 at the earliest.
Significant digital presence
The Committee supports the European Commission’s (EC’s) definition of a significant digital presence, which expands the traditional notion of permanent establishment (PE). Furthermore, a significant digital presence could contribute to establishing a Common Consolidated Corporate Tax Base (CCCTB).
On March 21, 2018, the EU announced its release of two legislative proposals on taxing digital business activities. The first proposal aims to reform corporate tax rules so that profits are registered and taxed where businesses have significant interaction with users through digital channels. A digital platform will be deemed to have a taxable ‘digital presence’ or a virtual PE in a member state if it fulfils one of the following criteria:
- It exceeds a threshold of €7 million in annual revenues in a member state.
- It has more than 100,000 users in a member state in a taxable year.
- Over 3,000 business contracts for digital services are created between the company and business users in a taxable year.
Digital services tax
The Committee also supports the EC’s proposal to introduce a Digital Services Tax (DST), which is an interim tax covering the main digital activities that currently escape tax altogether in the EU. The tax will apply to revenues created from activities where users play a major role in value creation, and which are the hardest to capture with current tax rules, such as revenues created from (1) selling online advertising space; (2) digital intermediary activities, which allow users to interact with other users and which can facilitate the sale of goods and services between them; and (3) the sale of data generated from user-provided information.
Tax revenues would be collected by the member states where the users are located, and will only apply to companies with total annual worldwide revenues of €750 million and EU revenues of €50 million. An estimated €5 billion in annual revenues could be created for member states if the tax is applied at a rate of 3%.
Taxation of digital activities
The Committee encourages the Government to establish taxation of online platforms, based on the information they deliver, as well as on the value they create. The goal is the sharing of information between online platforms and tax administrations.
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