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    09/01/2013 - Multinationals’ tax planning strategies by Nicolas Duboille & Anne-Claire Barrault

    Recent positions taken by the British authorities to seek more taxes from multinationals operating on UK territory such as Amazon, Google or Starbucks have triggered widespread reactions throughout Europe and in the US.

    Across the English Channel, this topic is very well known by French government and lawmakers ; over the past few years the government has multiplied tax reforms to fight against the loss of tax revenue due to the minimisation of taxable basis in France through aggressive tax planning policies.

    This hardening of the taxation of multinational companies in France can be observed through numerous measures. For example, the worldwide tax consolidation regime was abolished in 2011 and the French controlled foreign companies (CFC) rules have been reinforced by the second amended Finance Bill for 2012. The modification of the French tax environment for multinationals can also be observed through the hardening of the French transfer pricing rules and the new restrictions applicable to the deduction of financing expenses.

    It is no secret that France and multinational companies operating in France using tax planning opportunities to reduce their French tax exposure have been under strains during the past few years. While English lawmakers are questioning these companies before Parliament, it seems that French tax authorities have decided to take tougher measures by initiating legal actions against two internet giants Google (though Google denies the existence of such tax reassessment) and Amazon for tax non-compliance. According to French journalistic sources, French authorities have addressed Amazon a €198 million ($261 million) tax reassessment notice which could be related to the company’s transfer pricing policy.

    But the most remarkable step forward taken by France is related to the taxation of profits deriving from e-commerce activities. French authorities seem to be at the forefront on this topic with the attempt to create a specific taxation on profits realised by e-commerce entities, known as the “Google tax”. This tax, consisting of a 1% contribution on online advertisement, was, however, abolished before its entry into force.

    Another notable legislative initiative – “Tascoé” – is the proposed taxation at a 0.5% rate on business-to-business sale of goods and services performed via an electronic communication medium ; this taxation has nevertheless not even been voted by the Parliament. Yet these legislative setbacks have not discouraged lawmakers, as in July 2012 a draft Bill was submitted by Senator Philippe Marini aiming at the creation of a whole new chapter in the French Tax Code including (i) a procedural aspect with the obligation for foreign located e- commerce operators to declare their activities in France ; and (ii) the introduction of two new versions of the "Google tax" which would now be applicable to advertising management activities and not to advertisers themselves, as well as the "Tascoé", which would now be applicable to all business-to-consumer sales of goods and services, at a rate of 0.25%. The same tax reforms have been examined again by the French parliament during the 2013 Finance Bill discussions, but have been withdrawn considering the current presidential initiative on that matter.

    Indeed, President François Hollande has expressly renewed his will to impose e-commerce giants operating in France and a governmental working group has been set up this autumn. The result of the analysis of this working group should be unveiled at the beginning of 2013 and could lead to the creation of a new specific taxation in line with the former legislative initiatives.

    The French authorities are also sensitive to the loss of tax revenues relating to the VAT territorial rules applicable to e-services : pursuant to current VAT rules, VAT is due in the member state where the provider is established when the service is provided to a European individual client. This means that big companies such as Apple or Amazon are able to sell e- services to French individual clients while being established in an EU country offering both low corporate income tax and low VAT rates, such as Luxembourg. France, among other high-tax jurisdictions, is willing to speed up the European agenda because, even if these particular rules have already been modified, they will have to wait until 2019 before the VAT on business-to-consumer e-services is fully paid to the state of residence of the individual customer.

    On the international scale, France has reiterated its support for the OECD initiatives on this topic, in particular the new programme called Base Erosion and Profit Shifting and the new guidelines on the evaluation of intangibles for transfer pricing purposes. It is probable that the French government will recognise that the adaptation of multinational taxation rules to our new international business environment would require a strong international coordination and the renegotiation of tax treaties. Indeed, the existing tax treaties entered into by France would probably neutralise the impact of the domestic tax reforms that could be put in place in the future with a view to tackling multinational companies’ international tax optimisation.

    Nicolas Duboille (N.Duboille@granrut.com) is a partner, and Anne-Claire Barrault (ac.barrault@granrut.com) is an associate, at Granrut law firm.

    Source : International Tax Review