The digital economy has revolutionized traditional ways of conducting business around the world, while international tax rules have been slow to adapt to this new business environment. Many countries have started discussing ways to address this situation. At the international level, the recent G8 Summit held in Lough Erne, Northern Ireland, on 17 and 18 June, 2013, the upcoming OECD action plan on BEPS expected in July 2013 and the next G20 summit in September will likely provide additional guidance and proposals on the taxation of digital economies.
As you might have been aware France has recently made some direct tax demands against some major digital businesses. The French government has also commissioned a report on the taxation of the digital economy. This report (by Pierre Colin & Nicolas Collin) has accelerated legislative discussions and government plans towards a forthcoming proposal to tax the digital economy as part of the 2014 French budget. The authors propose (among others) the following two steps for taxing digital companies:
- Creation of a new tax which would take value creation by internet companies into account. According to the authors, the tax should be designed to create incentives for digital economy companies to adopt compliant practices in favor of “user empowerment and innovation”.
- Introduction of a new permanent establishment (“PE”) definition for the digital economy whereby a PE would be created each time internet user data is collected in a domestic market. Domestic data collection would imply some de facto domestic uncompensated workers and, as such, a PE.
Another report — the “Lescure” report — was presented recently to the President and the Minister of Culture and Communication regarding cultural policy in a digital environment. This report focused specifically on new ways to finance the creation of cultural content in a digital media environment. The report contemplated (again among others) a one percent tax rate that would apply on the device’s sale or rental to the end consumer. The tax would be added to the applicable VAT rate and would be due from the distributor/retailer of the device or the service provider.
If enacted, the measures proposed by these reports may have significant impact on French and foreign companies generating income from digital activities in France. More information about this topic can be found here.