Taxation of the digital economy: new developments, but not yet over

This summer, France hits the headlines with Bruno Lemaire’s proposal to tax the giants of the Web, via a specific tax on turnover. In addition to the complex technical questions of implementation (what sectoral definition for digital, what size of companies concerned, etc.), or its legal validity, particularly in accordance with the principle of equality before the tax system, this proposal made it possible to speed up political reflection on the subject.

This proposal came in competition with work in progress in the European Union, notably on CCCTB and, above all, the OECD, with Action 1 of BEPS. In this respect, the OECD considers the subject to be too complex for a “simple” answer, and intends to make innovative proposals by 2020.

At the heart of these questions, the main one is whether digital is a specific sector, or just a new expression of the economy as a whole. The OECD has partly responded by moving the title of BEPS Action 1 from “fiscal challenges posed by the digital economy” to “challenges posed by the digitalisation of the economy”. We no longer highlight an economic sector, but we wonder about the consequences of the digital upheaval on all economic sectors, which seems more in tune with the reality of the economic upheavals.

And, on the substance of the matter, the debate opposes the followers of the primary importance of intangibles (primarily the USA), who consider that the value is generated by the intangible assets of the groups, and therefore should only be taxed at home; and the followers of the market, who consider that the right to tax must be more closely linked to the consumer, who is the final creator of the value, by his act of purchase. The political will of both the OECD and many States, including France, is to rebalance the relative weight of the market and intangibles, with the appropriate mechanism still to be defined (implementation of a form of formulary apportionment, evolution of the concept of permanent establishment, recommendations on the interpretation of the value chain, etc.). But, for France, beware of the risk of Pyrrhic victory, because, by overtaxing the giants of the Web, we are in danger of opening the door to an increased taxation of our luxury giants in the various markets where they operate, and therefore, outside our borders.

Grégoire de Vogüé

Grégoire de Vogüé, Partner, heads the Transfer Pricing team. He has acquired more than 14 years in all transfer pricing issues and corporate strategy. His multidisciplinary skills combined with his […]