France Proposes 5% Digital Services Tax Increase for 2025 Budget

October 28, 2024

After Italy announced its plans to change its Digital Services Tax (DST), French lawmakers also proposed changes to the DST rules in the 2025 Budget. However, while Italys' solution is to remove the global and national DST threshold, France has a different approach to generating more state revenue from digital services.

While many countries are still waiting for the final decision to implement the OECD Two Pillar Plan, scared of potential US trade sanctions retaliation, France is considering changing the DST rules to reduce its budget deficit.

Proposed Changes and Its Impact

France introduced the DST, also known as GAFAM, in 2019, setting it at a 3% rate. Under the DST rule implemented, the taxable persons subject to the DST are French and foreign companies whose annual turnover from taxable supplies is EUR 750 million globally. In contrast, at least EUR 25 million is generated from French consumers.

Five years later, France is considering a different approach than Italy as it debates whether to increase the DST rate. The first suggestion was to increase it to 6%, but it was rejected. However, a new proposal was made to increase it to 5%, which would generate more than EUR 500 million in additional revenue for the national budget.

This all comes as part of drafting the Finance Bill 2025 and debate on all taxes and other budgetary measures for the following year. The 5% DST proposal is still being evaluated and discussed, so it remains to be seen what the French lawmakers will decide.

Conclusion

As the implementation of the OECD Two Pillar Plan is still uncertain, more and more countries are taking steps towards implementing or updating their DST rules and regulations. The Pillar One is essential for digital services and companies engaged in its supply.

Therefore, while waiting for a consensus to be reached for a unified rule on a global level, it should not come as a surprise if other countries start to follow Italy or France and take matters into their own hands. This will add additional financial and operational challenges for global companies.

Source: National Assembly - Amendment No. I-735, National Assembly - Amendment No. I-CF1747, Finance Bill for 2025, VATabout - Italy Proposes Removal of Digital Service Tax Thresholds in 2025 Finance Bill

What is France's proposed change to the Digital Services Tax (DST) in the 2025 budget?

France has proposed increasing the DST rate from the current 3% to 5% as part of its 2025 budget plan. This adjustment aims to generate an additional €500 million in revenue for the national budget.

Which companies are affected by France's DST?

The DST applies to companies, both French and foreign, with annual revenues exceeding €750 million globally, of which at least €25 million is derived from digital services provided to French consumers.

What services are subject to the DST in France?

The tax targets revenues from specific digital services, including online advertising, the sale of user data, and digital intermediation services that connect users, such as online marketplaces.

Why is France proposing an increase in the DST rate?

The proposed increase is part of broader efforts to reduce France's budget deficit. By raising the DST rate, the government aims to boost public revenues, especially as the implementation of the OECD's Two-Pillar Plan for global tax reform remains uncertain.

How does this proposed increase align with international tax reform efforts?

While the OECD is working on a global framework to address taxation in the digital economy, progress has been slow. In the meantime, countries like France are adjusting their national tax policies to address immediate fiscal needs, even as they await comprehensive international solutions.

What are the potential implications for international digital companies operating in France?

If the DST rate increases to 5%, affected companies may face higher tax liabilities on their revenues from French users. This could lead to increased operational costs and may prompt companies to reconsider their pricing strategies or business models within the French market.

Digital Services Tax (DST)

E-Commerce

Digital