E-commerce - Corporate income tax - Digital products

This chapter is not exhaustive and is limited to broadly outline the tax consequences of the main events occurring when doing business in France. It does not constitute a tax advice or a client - attorney relationship. Materials are not suitable for tax analysis. Visitors are invited to consult a tax lawyer before taking any decision.  
 

 format are considered as digital products.

Most of the time software, music, pictures etc.. purchased on the internet in a dematerialized format are considered as digital products.

Payments made on the internet to acquire digital products may be considered either as a purchase or as a payment of a royalty.

According to OECD, if the payment is not made for the acquisition of a copyright, e.g. downloading a software to use it on his computer, it is considered as a purchase. The vendor is fully taxable on the related profit. According to French tax rules, the foreign vendor will only be taxable in the jurisdiction from where the product is coming from.

However if the payment is made for the acquisition of a copyright, the transaction is considered for tax purposes as a royalty payment. When the licensor and the licensee are tax residents in two different countries, some jurisdictions limit or prohibit the tax deductibility of the royalties paid abroad. In the same way, some tax treaties entitle the country of licensee to withhold tax on the royalties. In such case, the licensor benefits, most of the time from a tax credit of the same amount which may be offset from the taxes owed in his country.

French enterprises are taxable on sale proceeds and/or royalties derived from digital products copyright. The acquisition of a digital product is tax deductible or depreciable.

The royalties paid from France to a foreign licensor for the use of a digital product are tax deductible. According to the applicable tax treaty, the foreign licensor is either tax exempt in France or subject to a 5% to 33.33% French withholding tax. In very limited cases, a foreign vendor may be taxed in France like a French resident.

Special attention must be paid to royalties or purchase price paid to foreign licensor or vendor resident in non treaty countries or in tax havens.