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Laurence Mazevet, Cindy Cloquette and Romain Dayan Fidal, Paris
Laurence Mazevet is Tax Partner, Cindy Cloquette is Tax Senior and Romain Dayan is an Indirect Tax Senior Manager at Fidal, Paris
As the digital economy in France becomes increasingly important, there is greater focus on the tax obligations of online platforms. New requirements are due to be introduced in 2017 and automatic reporting of income is expected as from 2019; these developments are considered in this article.
Born out of alternative consumption patterns, online platforms are part of what we now call the “sharing” or “collaborative” economy. They have become key players in creating value through opportunities for accommodation, travel by car, recycling of used items … and are a source of additional income for the platform's users.
The business of these platforms was initially regulated in France from a consumer protection perspective by reinforcing the pre-contractual obligation of information and notably including the tax and social aspects of the transactions. The question of taxation of income deriving from platform activities is highlighted in many countries, including the U.S. for example (please see in this respect: http://src.bna.com/oCp and http://src.bna.com/oCr).
In France, the 2016 Amended Finance Act outlined the content of this obligation from a tax and social perspective and provided platforms with details regarding the practical implementation of their obligation entering into force in 2017 for the first time. This is in line with the general trend of countries' attempts to deal with the digital economy. It has already been announced that the next step should be for platforms to send information on users directly to the French tax authorities; although this new obligation, to be applied as from 2019, is still unclear and potentially subject to further changes.
Since the 2016 Finance Act (2016 Finance Act n°2015-1785 dated December 29, 2015), “people-to-people” platforms (this term has been chosen by reference to the definition found on the AirBnB website here: https://www.airbnbcitizen.com/airbnb-policy-tool-chest/. In the author's opinion, this reflects the wording of the French law pursuant to which the “platforms” concerned by the new obligation are “platforms connecting people”. It is also sometimes defined as a “community marketplace” which however seems to be less specific in light of the wording of the French law) have been required to provide fair, clear and transparent information on the tax and social obligations of users carrying out commercial transactions (Articles 242 bis of the French Tax Code (“FTC”), 171 AX Annex II of the FTC and L114-19-1 of the French Social Security Code. See also Article L111-7 of the French Consumer Code which expressly refers to the obligation for platforms to inform on “the quality of the advertiser and the rights and obligations of parties in civil and tax matters when users are linked with professionals and non-professionals.”) .
Legislation applies to transactions carried out since July 1, 2016 (Article 242 bis of the FTC) and to any platform whose users perform transactions in France, i.e., foreign platforms are therefore in the scope as well.
Practical details were published on February 3, 2017 (under the conditions laid down by Decree n°2017-126 of February 2, 2017 and the administrative guidelines referred as BOI-BIC-DECLA-30-70-40-20170203). Due to the late publication of the law, the administrative guidelines and the official dedicated tax and social mini-websites, the deadlines for meeting the various obligations have been adjusted as regards the first year of application of the regime (i.e., for transactions from July 1, 2016 to December 31, 2016).
Keys points are the following:
|Going Further Providing the official links on the platforms is not sufficient, as platforms must also be in a position to demonstrate that the links have been sent to their users, in a readable format, at the time each transaction is carried out, according to the current drafting of the law (in force). However, due to the practical difficulties for platforms to meet this timing constraint, a change of law is considered so that the obligation can be deemed satisfied if platforms send a monthly document with a description of the tax and social obligations and official links, provided that it concerns regular transactions referring to the same activities (this derives from the bill, subject to future changes in the course of discussions of this law).In addition, the links lead users to documents summarizing the tax or social regimes. However, this does not necessarily cover, in our opinion, all the possible situations of the platform's users. Timetable Insertion of the links on platforms and sending of messages to users is mandatory as from March 1, 2017. Platforms which are yet not in compliance should ensure that this issue is addressed as soon as possible (BOI-BIC-DECLA-30-70-40-20170203 §30).|
|Going further The user is responsible for distinguishing every type of income, taxable or not. Also, the platform is not responsible for the user's compliance with their own tax and social obligations. The obligations are limited to the provision of full, relevant and reliable information on the tax and social obligations of users. It does not involve, in our view, setting up any declaration of honor system for example. Platforms are not considered, under French law, as trusted third parties. Timetable In principle, the document has to be sent before January 31 of each year. However, in accordance with a special administrative tolerance, the deadline for submitting such document for 2017—concerning transactions performed fromJuly 1 to December 31, 2016—was extended to March 31.|
The certificate shall be sent spontaneously to the tax authorities within the same deadline (i.e., March 15, on a yearly basis except for 2017 where the deadline is May 15 for 2017 as an administrative tolerance (BOI-BIC-DECLA-30-70-40-20170203 §50)).
In the event of non-compliance, platforms would be liable to a fine of 10,000 euros (Article 1731 ter of the FTC and administrative guidelines BOI-DIC-DECLA-30-70-40-20170203 §70), not applicable if the certificate is duly provided within the 30-day period after receiving the letter from the FTA stating the breach (Article L80 P of the FTC).
|Going further Considering the few details given so far, the possibility of obtaining a partial certificate is difficult to assess at this stage (e.g., in the situation where a platform made its best efforts to comply with its obligations but for any material reason encountered difficulties).|
From a purely technical point of view, it seems quite easy to identify and collect the requested information and produce a summary of transactions, provided that the automated system is properly designed. Nevertheless, it is a development cost that needs to be considered when creating the business plan of future platforms and implementing their IT systems. Existing platforms will have to carry out an upgrade; how difficult this may be will depend on the flexibility of their initial architecture design and the information available from users.
In addition to these technical development costs, the annual certification will also increase the running costs of a platform and this should be factored into business plans as well.
Last but not least, platforms should be particularly careful in the drafting and content of messages sent to users and information made available on the internet to comply with their obligations. Saying too little may result in a non-compliance situation, while saying too much may attract costly or unsought responsibilities.
New Article 1649 quater A bis has been introduced in the FTC (2016 Amended Finance Act no. 2016-1918 of December 29, 2016. Subject to future modifications as suggested by the proposal submitted by the French Senate for adaptation of taxation to the collaborative economy n°482 dated March 29, 2017, page 6), with an entry into force expected on January 1, 2019. Pursuant to this provision, platforms will have to send a declaration of their users' income to the French tax authorities, known as the Automatic Secured Declaration (“DAS”). The contours of the obligations are still a grey area.
The declaration shall include the following information:
In practice, the DAS shall be sent annually by electronic means, used to pre-fill the personal income tax declaration of users, and a copy shall be sent electronically to users. Further details shall be given by decree and the administrative guidelines, it being specified that the implementation terms are still in discussion and subject to future changes; several reports have been published on the subject of regulation of the collaborative economy, notably from a tax standpoint. The Terrasse Report dated February 7, 2016 is a key one; more recently the Senate rendered a report, “Taxation of the collaborative economy: need for simplicity, unicity and equity” dated March 29, 2017, showing that the tax treatment of income deriving from the collaborative economy is still under discussion.
So far, in France, no special taxation regime for income deriving from platforms has been created, nor is one expected. For the sake of simplicity, the French Senate is considering setting up a special allowance to exclude the taxation of small occasional amounts, but normal rules shall in any case apply, i.e., the income tax regime, including VAT matters, will depend on the situation of the user and nature of the revenue (a new law will need to be voted).
For the platforms, standard corporate income tax and VAT rules should apply too as no new special provisions have been enacted. However, VAT analysis should be carefully performed, as the complexity of the flows of services performed by platforms undoubtedly creates a challenge for them (a potential mix of business-to-business and business-to-consumer transactions, in a domestic and also in a cross-border context).
Anticipation is key: we strongly believe platforms should now consider the issue of ensuring compliance with the future DAS provisions and being able to collect and extract the requested information in the appropriate way. Our minimal recommendation would be for a flexible IT design, allowing easy access to information in liaison with the identification of users and flows, and with the possibility of anticipating future modifications or information to be added.
As the details of the DAS regime are not yet known, the scope of possibilities is wide. Several questions can be raised, such as, for example, the way of determining the information to declare. It is possible to imagine that the information could be reported on:
Replies to these kinds of questions will not be neutral.
Ultimately, all the information provided to users and administrations by the platforms should be perfectly consistent, to avoid a possible statement of breach at the level of the platform or users.
In addition to the tax and social issues, it is worth noting that the Consumer Code provides for a right of investigation into the practices of platform operators regarding their pre-contractual information obligations. The findings of such investigations can be circulated and the list of online platforms that do not comply with their obligations published. In our view, this constitutes a reputational risk to be taken into consideration for platforms. In this respect, it is considered that platforms should be compelled to mention, on the home page, the certificate, date of delivery and identity of the certification entity (please see the proposal by the French Senate for adaptation of taxation to the collaborative economy n°482 dated March 29, 2017, page 6 and 11).
Laurence Mazevet is Tax Partner and Cindy Cloquette is Tax Senior at Fidal, Paris, both specializing in direct tax; Romain Dayan is a Senior Manager at Fidal, specializing in indirect tax. The authors may be contacted at: email@example.com; firstname.lastname@example.org; and email@example.com
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