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France’s Constitutional Council voided a “Google tax” measure, but new budget laws have armed the French tax authority with tough new audit powers to go after U.S. Internet giants and other big companies.
New measures took effect Jan. 1 to substantially widen and strengthen the tax authority’s audit powers by simplifying tax raid procedures, allowing authorities to interview third parties for information about companies and increasing maximum penalties, among other things, practitioners told Bloomberg BNA.
The 2017 budget law that Parliament adopted Dec. 20 included provisions to widen the tax administration’s latitude to apply anti-abuse penalties of up to 60 percent on profits deemed to have been “artificially” diverted to avoid French taxation.
Both the government and Tech In France—an association of 400 companies including Facebook Inc., Google Inc., Microsoft Corp. and Uber Technologies Inc.—opposed the measure on the grounds that it violates France’s international tax conventions against double taxation and unfairly targets technology companies.
On Dec. 29, the Constitutional Council came to the rescue, ruling the provisions, which could only be applied in the course of an audit, was unconstitutional because the decision of whether to apply the provisions was left with the tax authorities.
But the new measures announced boost the tax authority’s powers to target global Internet companies in other ways.
The new measures seek to increase “transparency, and fight tax fraud, whatever form it takes,” Laurence Clot, a Paris-based Bird & Bird LLP partner, said in a Jan. 11 e-mail. She said the Google tax measure could possibly be revived with some tweaking, but emphasized that France’s presidential election in April and subsequent new government will shed much light on that measure specifically—and on where French “political will” is going on tax policies in general.
Gaelle Menu-Lejeune, a partner at the Paris-based law firm Fidal, said she thinks it unlikely the Google tax measure will be back anytime soon, in particular because the government opposed it, saying it already has other means to attack profit diversion.
“Also, the government has been working on its own plan for redefining permanent establishment to go after digital companies, but that’s not finished yet. The law was just premature on that issue.”
Menu-Lejeune said the new third-party interview measure, published in the 2016 revised budget law and effective Jan. 1, gives the government another way to show that Internet companies have permanent establishment in France.
“For example, for a Google or a Microsoft, they can question their accountants, subcontractors or service providers about the real contracts they have with have these companies,” she said. “Tax authorities can now interview anybody—current or ex-employees, customers or suppliers—to see how the company operates in France.”
Tax authorities can determine if an Internet company, say Google, has a telephone platform set up in France. It’s a broad, powerful new audit tool that “can also be used not only to confirm suspicions, but to come up with new ones,” Menu-Lejeune said.
Another new measure requires companies to file their accounting information digitally to the tax authority, which can then take its time doing “long distance” accounting audits.
This creates new risks for companies because they have a short time to prepare their data, which the tax authority can then process and crunch looking for potential issues.
“So companies have to be quite careful about how they prepare their data,” Menu-Lejeune said.
The published, final version of the 2017 budget law included language allowing the French tax administration to pay whistle-blowers for tips on international tax fraud under a two-year “experimental” measure, starting Jan. 1, 2018.
Clot said a measure in the 2016 revised budget increased France’s financial transactions from 0.3 percent from the current rate of 0.2 percent and extended its base to include intra-day trades, taking effect Jan. 1. It also made changes to the way companies make advance corporate tax installments, with a view to speeding up their remittances.
Menu-Lejeune said the 2016 revised budget included a so-called Youtube tax on advertising revenue linked to online videos, “but that has gone to the European Commission for approval and has not taken effect. That could take a few months.”
Other published measures completed the government’s 40 billion euro ($42.2 billion) deal with businesses to gradually cut taxes through 2017 in exchange for increased hiring, as part of a so-called responsibility pact initiated in 2014. It also increased the tax credit for employment and competitiveness, or CICE, that the government introduced in 2012, from the current 6 percent rate to 7 percent.
In addition, the law extended, from five years to eight years, the period for which “impatriation bonuses” for foreign employees that come to work in France are exempt from income tax.
To contact the reporter on this story: Rick Mitchell in Paris at firstname.lastname@example.org
To contact the editor responsible for this story: Penny Sukhraj at email@example.com
The final 2017 budget law No. 2016-1917 of Dec. 29, 2016, published Dec. 30, is available, in French, at http://src.bna.com/lnW.
Text of the Constitutional Council’s Dec. 29 ruling is at http://src.bna.com/lnU.
The revised 2016 budget law No. 2016-1918 of Dec. 29, 2016, published Dec. 30, is at http://src.bna.com/lnX.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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