Following talks with the US on taxation of digital companies France has agreed to stop delay collection of its planned digital tax, although the liability for the tax will still accrue.

France is planning to impose a 3% digital services tax on large companies that members of groups with revenue of at least EUR 750 million worldwide and EUR 25 million in France, derived from certain covered digital activities, including digital advertising and facilitating digital market place platforms.

The US had threatened retaliation in the form of duties on the automobile industry among others; but following talks the threat has been withdrawn and collection of the French tax postponed.

France’s digital services tax is however to remain in place until international agreement is reached on a similar tax. The legislation introducing the tax has not been suspended or withdrawn and companies will have to pay the tax in 2020 unless an international agreement has been reached by then.

Various other countries including the UK are planning to impose digital taxes unilaterally if the current international talks are not successful.

Next week 137 countries are to take part in an OECD conference on the tax challenges of the digital economy. The target is to reach agreement on an international tax framework in relation to the digital services tax before the end of 2020.

Under the current OECD proposals Pillar One of the approach would give countries the right to tax digital companies based on the location of users, while Pillar Two would introduce a global minimum corporate tax rate that would ensure the multinational companies pay a minimum amount of tax in relation to their global income.

The US in December 2019 had suggested that the proposed global digital services tax under Pillar One should be optional. Following the latest talks the US has now agreed that it will continue to insist that an international digital tax must follow “safe harbour” rules, but those rules would be drafted in a way to avoid any reference to a requirement that the tax should be optional.