Digital Data Taxation: French Provocation or Global Revolution?

Amandine de Montvalon, consultant, and Christopher Abboud, consultant, are based in APCO’s Paris office and are both members of APCO’s technology practice.

It is likely that the fiscal framework for digital businesses in France will change by January 1, 2014.  While the French government is looking for new sources of revenue to reduce the public deficit, the tax affairs of multinational players in the digital economy are under close scrutiny across a number of EU countries.

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As France is suffering from economic downturn, the French government is eyeing international online firms as a possible “golden goose” to help them address the deficit. Most global online firms are believed to use entirely legal tax optimisation processes to minimise the tax they pay on revenues generated in the French market. In addition, the new socialist-green parliamentary majority is eager to seize this opportunity to force greater transparency on the way internet businesses use the data they collect.

Setting… the cat amongst the pigeons: the Colin-Collin report

On January 18 2013, a report on the taxation of the digital economy commissioned by government ministers and authored by two senior civil servants, Nicolas Colin and Pierre Collin, created turmoil among digital players operating in France, and beyond French borders.

The authors put forward two main proposals to adapt France’s tax system to the new digital economy:

1. At international level: the authors recommend creating a legal status for “permanent virtual establishments” recognising that a percentage of companies’ profits come from “unpaid work” made – in any given country – by users who share their personal data.
2. At national level: Colin and Collin suggest creating a tax on the collection of data through regular and systematic monitoring of users’ activity in France. Tax deductions would be possible for companies that provide greater transparency for users or those that encourage the development of an ecosystem using the collected data to develop further applications.

Setting…the tone? How French proposals connect with the international agenda

Click to read the analysis in French

At this stage, the report has no legal status, but it will likely influence decision makers in the near future. The French government has already announced its intention to include a new tax targeting the digital economy in the budget bill for 2014.  Moreover, the impact of the report is not limited to France as it is resonating at international level. These proposals come in parallel to the work of the Organisation for Economic Co-Operation and Development (OECD) on the tax optimisation systems of global companies, not to mention discussions at the EU level on the portability of VAT.

In this context, 2013 will be critical year as several countries are engaged in a fight against tax erosion, while companies seek to protect their operations at international scale. Major internet players and all companies that include digital in their business models will have to engage in a constructive and transparent discussion with both national and international authorities.

It is all about finding a win-win solution addressing public concerns while ensuring sustainable growth for the future of the economy.