9 Sept 2019
French Minister Reveals Plans to Reform VAT Collection in the E-commerce Realm
On 22 August 2019, the French Minister of Public Action and Accounts, Gérald Darmanin, in an interview with the French financial newspaper “Les Échos,” revealed plans to reform the collection of VAT from e-commerce platforms.
In recent times, it is France’s second attempt at targeting the taxation of e-commerce platforms. As already reported in Controversial French Tax to Be Imposed on Tech Giants; France Faces US Retaliation, on 24 July 2019 the French President signed into law a 3% tax on large tech companies’ local revenues, i.e. income from digital business generated by providing services to French users. The latter applies to tech companies with global sales of over €750 million, and which make more than €25 million a year in France. The tax affects major tech giants like Google, Apple, Facebook and Amazon and is thus also known as the “GAFA” tax. This legislative measure was carried out as a result of the stalled plans for EU-wide tax changes.
With its unveiled plan of 22 August 2019, France is once again focusing on the taxation of e-commerce platforms. However, the new plan focuses on VAT. The fraud linked to VAT is said to have amounted to €147 billion at the EU level, €20.9 billion of which concerned France alone. More specifically, VAT fraud from distance sales in the EU is estimated to be at €5 million per year amongst Member States. The French Minister highlighted that VAT fraud is pervasive and is linked to 80% of criminal cases in France. In tackling the VAT issue, Member States are expected to increase State revenues to €7 billion annually. Concerning France, where VAT is the State’s first revenue, the French Minister expects that “several hundred million, even several billion can be recovered.”
As part of the plan, the French Minister is eager to transpose EU Directive 2017/2455 adopted on 5 December 2017, which concerns certain value added tax obligations for supplies of services and distance sales of goods and which aims to modernise and adapt the collection of VAT from e-commerce platforms. New obligations will be established in the French Government’s Budget Bill, which is to be presented to the Council of Ministers in late September.
Even if France (together with all other EU Member States) has until 31 December 2020 to transpose the EU Directive, France is proactive and is eager to be avant-garde when it comes to taxing e-commerce platforms. The EU Directive seeks to create a so-called “one-stop-shop” and impose VAT collecting obligations on e-commerce platforms.
The one-stop-shop concept will mean that online platforms will pay VAT in one single Member State. That Member State will subsequently pay a portion of the VAT received to other Member States where purchases were made, meaning that VAT will be paid in the Member State of the consumer, ensuring a fairer distribution of tax revenues amongst Member States.
For start-ups and SMEs, the EU Directive introduces an important simplification. Where yearly cross-border online sales are below €10,000, a business will be able to continue applying VAT rules used in its home Member State.
Furthermore, the new rules remove an exemption for consignments from outside the EU worth less than €22, which would in consequence be relevant to certain Hong Kong exports destined for Europe’s consumers. It has been reported that around 150 million small consignments are imported free of VAT, and the current system is open to abuse. Whilst EU businesses have to apply VAT regardless of the value of the goods sold, imported goods benefit from the exemption and are often undervalued in order to do so.
Moreover, under the EU Directive, e-commerce platforms will be legally tasked with the collection of VAT on distance sales that they facilitate. These platforms are regarded to be in the best position to know the exact trade flows which take place on the platform. It thus means that platforms will no longer be considered mere intermediaries but presumed sellers.
Also as part of the recently announced plan by the French Minister, inspiration has been drawn from the EU tax haven blacklist in order to establish similar lists for e-commerce platforms. The aim is to “name-and-shame” e-commerce platforms found to be fraudulent and thus incentivise good behaviour. The Minister included the following criteria to be considered in creating the VAT e-commerce platform blacklist, i.e., checking whether an e-commerce platform has paid the GAFA tax; paid VAT; and responded to tax authorities where they have been asked to do so.
Apart from France, other European countries will soon start working on their own national laws transposing the EU Directive and may thus draw inspiration from the French model.