The New French Google Tax

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REF: 046:

The new “Google Tax” is intended to counter the methods used by multinational corporations to avoid paying tax in certain countries, particularly in the field of e-business where the location of profits is out of the control of sovereign states.

This tax is based on the Diverted Profits Tax recently introduced in the UK which came into force on 1^st April 2015. A draft was introduced by Socialist deputy Yann Galut, which was passed by the National Assembly on 22^ndNovember 2016, and therefore included in the budget bill for 2017.

However, to complicate matters, the Senate rejected it upon first reading on 30^th November 2016. A Joint Committee will now be in charge of finding a common text.

The tax will affect the following:

• Legal persons domiciled in France
• Legal entities established outside of France, engaged in the sale or supply of goods or services via a permanent establishment in France,
• Legal entities established outside of France who are connected via another legal or natural person (domiciled in France or not) who has an activity related to the sale of goods or the provision of services by the legal person established outside France if the purpose of that activity is to avoid or mitigate the tax that would be payable in France by avoiding the declaration of a permanent establishment.

Examples:

• A person acting on behalf of the legal entity who enters into contracts in the usual way or acts as principal in the process leading to the finalisation of contracts:

1. Concluded on behalf of the legal person
2. Concerning the transfer of ownership of property or the granting of the right to use property belonging to that person,
3. Relating to the sale or supply of goods or services by the legal person, unless the person carries on an independent activity and the activity which he carries out for the legal person is within the ordinary framework of his activity.

• Any physical site located in France that receives, stores or transports products sold by the legal person or on which it has a right of ownership or has an operating licence,

• Any website, whether hosted in France or not, that sells or provides products or services to persons domiciled in France under certain conditions:

1. That the goods or services are sold or supplied by the legal person established outside France
2. Or that the legal person has a right of ownership over the products or services sold

Those mentioned above are subject to the « impôt sur les bénéfices détournés » (Tax on misappropriated profits) if they are constituted in order to avoid declaring a permanent establishment in France.

 These persons are deemed to have a permanent establishment in France if the following conditions are met: 

1. They have an undertaking or legal entity, established in France or not, which sells or supplies goods or services which are owned by the legal person or which the legal person has the right to use,
2. The legal person :
   • Holds, directly or indirectly, 50% of the shares, financial rights or voting rights of the company or legal entity,
   • Either the undertaking or the legal entity is placed under the control of the legal person (in the sense of article L233-3 of the Code de commerce^[1])

The holding percentage mentioned above is reduced to 5% in the following cases:

1. The company or legal entity is listed on a regulated market and more than 50% of the shares; financial rights or voting rights of the company or legal entity are held by companies established in France that act togeter,
2. More than 50% of the shares, financial rights or voting rights of the company or legal entity are held by companies established outside France which are dependent on or have direct or indirect control of the legal person.

NB: Where the legal person domiciled or established outside France is established in a country subject to a preferential tax regime or is a non-cooperative State or Territory, the condition of dependency or control is not required.

In this case, only the first criterion of ownership of the goods or services by the foreign legal person must be fulfilled.

However, there are some exceptions – legal persons are excluded from the scope of the tax on misappropriated profits in the following cases:

1. The foreign company or permanent establishment in France is an SME in the community sense, ie its workforce is less than 250 persons and its turnover is less than €50 million or the total balance sheet is less than €43 million,
2. The foreign company demonstrates that the transactions have an object and effect other than avoiding taxation in France and provides proof of the real, normal, non-exaggerated nature and lack of economic substance of the transactions,
3. The foreign company is established or incorporated in a Member State of the European Union unless the purpose is exclusively to avoid or mitigate tax that would be payable in France.

If Article 209 D of the CGI is finally adopted by the National Assembly within the framework of the budget law for 2017, it will be applicable to fiscal years beginning on or after 1^st January 2018.

1. That is to say if the legal person has exclusive control (de jure or de facto) or a contractual control or exercises joint control

If you think that this matter applies to you, it is important to ensure substantial understanding of all relevant information, facts and procedures. Here at Maupard, we would be more than happy to advise you on the next steps and to allow you to make the most of these opportunities.

Do not hesitate to contact us by telephone on +33 (0) 1 53 93 94 20 or by e-mail to [email protected], so we can work out the needs of your business. Our team of experts is here to answer any questions you may have.