Tech giants have just a few months before they have to start paying France’s controversial 3% tax on digital services, but they still don’t have everything they need to figure out how much they’ll owe.

Aspects of the tax remain unclear, including how to count the number of users in France in certain situations, industry representatives and practitioners said.

The 3% tax on digital revenue, adopted by the Senate July 11, is retroactive to January and the first payments will be due in the fall. The tax, which French officials have described as a “GAFA tax” because it would target tech giants like Alphabet Inc.'s Google, Amazon.com Inc., Facebook Inc., and Apple Inc., hits companies that make more than 750 million euros worldwide and more than 25 million euros in France from specific digital activities.

The tax targets a company’s French revenue from digital advertising, sale of user data, and third-party online platforms that connect buyers and sellers. The French government expects the tax to bring in about 500 million euros per year, finance minister Bruno Le Maire said when he introduced the tax late last year.

Here are some of the questions companies have about the tax as they prepare for the first payment.

What Are Next Steps?

The tax will take effect as soon as it’s published in an official journal, a spokesperson from the ministry of economy said July 12—there will be no application decree, as the French government sometimes uses.

And the tax authority will also publish an official commentary note known as a BoFIP—Bulletin Officiel des Finances Publiques-Impots, where the tax authority publishes its commentary on taxes—the spokesperson said. That note is being drafted at the Tax Legislation Directorate, he said, and the coming into force of the tax won’t depend on the commentary note.

Meanwhile, companies are struggling to understand what the law is asking them to do.

“The law provisions are very vague,” said Valerie Farez, legal director at Pinsent Masons in Paris. Until the commentary note, “unfortunately for them, companies have to find their own interpretation of a tax provision.”

“It’s proving very challenging to make these calculations, and we’re spending a lot of time and energy to ensure we can comply with this new legislation,” a spokesperson at a company that would be affected by the tax said.

What is a ‘French’ User?

The tax would apply to the revenue companies make from French users—but in some circumstances it’s not clear what that means.

Part of the tax targets revenue, like commissions, that companies make from providing digital interfaces like an online marketplace. The tax is supposed to target French sales, but questions arise if a platform integrates third parties that are outside of France, Loic Riviere, the CEO of the industry group Tech In France, said July 3.

The government will still need to address the specific criteria of territoriality, how companies determine when a user is located in France, Farez said. “Normally, it’s only to tax services provided in France. How can you consider that a service is provided in France?” she said.

For example, it isn’t clear whether tech companies should track the digital activities, such as clicking on an ad, of French citizens, or of any user who is located in France, said Giuseppe de Martino, president of the French trade association of internet community services, ASIC.

The questions raised by user location mean that French tax authorities will likely have a hard time auditing companies, since they would need access to a lot of company data about users, said Bertrand Hermant, counsel at Taylor Wessing in Paris. Hermant advises a client that he says may be affected by the tax.

“This tax raises several questions in particular to its basis as the turnover taken into consideration will be the one from a French nexus,” Hermant wrote in an email.

How to Calculate the Tax?

With the first payment due later this year, companies are already thinking about how to calculate what they will owe—but they still face uncertainties.

The Oslo-based tech company Adevinta could see a 5 million euro hit from the tax, CEO Rolv Erik Ryssdal said in a Bloomberg interview July 15.

“Now that it has been approved by the French parliament, though it’s still not clear exactly which rules that will apply, we expect a clarification in not too long,” Ryssdal said.

One company that will be affected expects the amount it pays when the first installment of the tax is due this fall to be based on complex internal calculations of its French revenue, a spokesperson said. The company didn’t want to be identified.

“We cannot play with the rule,” de Martino said in an email. “We’ll have to determine the exact revenue generated thanks to French located users and then to change, adapt our systems in order to collect, track and retain such information.”

“I believe that companies will have to calculate the tax based on practical advice that they should receive from their advisor,” Hermant said. “We will nonetheless try to obtain clarification from the French tax authorities, but if we do not obtain anything before the due date, we will just apply the method which seems the most appropriate and have documentation explaining such method in case of a tax audit.”

“I believe that the French tax authorities will accept this method unless the position taken seems completely out of the context for instance,” he added.

Companies will have to calculate their payment based on how much revenue they made in 2018.

“Considering the numerous unanswered questions around the DST, the calculation of the taxable basis could become an issue without the appropriate guidance,” said Annabelle Bailleul-Mirabaud, partner at CMS Francis Lefebvre Avocats in Paris. “If there are still uncertainties at the time they file, companies are likely to compute their best estimate, in which case they should be prepared to explain the hypothesis they have used to reach their estimate.”

In 2020 they’ll then conduct a “regularization” between what they paid and what they should have paid, she said, and could end up owing more or receiving a deduction on their next year’s tax if their 2019 estimate was off.

—With assistance from Rick Mitchell (Bloomberg Tax) and Sveinung Sleire (Bloomberg).