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A controversial measure included in the “National Pact for the Revitalization of City and Town Centers” law was passed by the Senate on June 20th, proposing a tax on online product deliveries. The bill is currently under review by the National Assembly.
The widespread adoption of e-commerce in our society, the development of alternative delivery options, and the emergence of new urban distribution hubs have highlighted the importance of the last mile of delivery.
This crucial element in the delivery process represents, on average, 20% of the total shipping costs and, for online shoppers, is the primary factor in customer satisfaction or disappointment.
Selling products online: A variable and limited tax
Historically, the system was envisioned as a tax of €0.50 per kilometer between the last storage location and the final delivery point, with a minimum flat rate of €3, for goods purchased online.
Parliamentarians ultimately amended Article 27 of the legislation to implement a variable levy, ranging from 1% (distance less than 50 km) to 2% (distance more than 80 km) of the product price, depending on the distance between the last warehouse and the delivery location.
To balance this measure, the law provides for several exemptions, notably for retailers and craftspeople with a turnover of less than €50 million, or through the use of non-polluting means of transport and locally sourced agricultural products.
A tax on distance selling of products has been criticized
Intended to protect local businesses, this provision was sharply criticized by the French Federation of E-commerce and Distance Selling (Fevad), which denounced, in particular, the additional costs for consumers, as the text applies to all deliveries “to any natural or legal person not subject to value-added tax and ordered electronically.”
The Senate points out on this issue that “the delivery of goods ordered electronically is not subject to any specific taxation” and that only the ban on free delivery for online book sales was adopted, resulting in a 1-cent delivery charge on Amazon.
Online products: Anticipated gaps and workarounds
Implementing such a measure inevitably presents several challenges, as the tax is easily passed on to consumers, creating inequality between regions, and there are also issues related to identifying the “last storage location” of products.
The Senate has also not resolved the questions of how to calculate the distance traveled—as the crow flies or the actual route taken—and how to balance targeting major e-commerce players while neglecting the considerable market share of smaller, exempt businesses.
This tax will therefore be easily circumvented by companies, which will create numerous subsidiaries, thus remaining below the €50 million revenue threshold.
Other complementary or alternative measures remain under consideration, including the transposition of the directive of 5 December 2017 which provides for 5 billion euros of additional VAT revenue expected at the European level, a turnover tax associated with an evolution of the criteria for qualifying a permanent establishment as well as the qualification of e-commerce establishments as retail spaces.
Tax on e-commerce deliveries
Article 1519 of the Law on the delivery of goods ordered electronically to any natural or legal person not subject to value-added tax (VAT) is hereby established for the benefit of local authorities and inter-municipal public cooperation establishments with their own tax base that are signatories to an agreement relating to an economic safeguarding and revitalization operation as referred to in Article 1 of the Law on the National Pact for the Revitalization of City and Town Centers.
The tax is payable by the merchant on whose website the goods were ordered. It is based on the price of the goods ordered and the number of kilometers traveled by the goods between their last place of storage and the final delivery address to the buyer. When their last place of storage is located abroad, the distance taken into account is the number of kilometers traveled by the goods between their point of entry into France and the delivery address.
“The tax rate is set at 1% of the price of the goods when the distance between their last storage location and the final delivery address to the buyer is less than 50 kilometers, 1.5% when this distance is between 50 and 80 kilometers, and 2% when this distance is greater than 80 kilometers, with a minimum charge of €1 per delivery.
“The number of kilometers traveled must be declared by the taxpayer no later than the first business day of January of the tax year. The tax is collected by the State no later than the last business day of March of the following year.
“The following are exempt from the tax:
- Deliveries made using non-fossil fuel transport;
- Deliveries from commercial or craft businesses with an annual turnover not exceeding €50 million;
- Deliveries from businesses whose main activity is the sale of books and which have physical points of sale;
- Deliveries from producers’ shops marketing their products through a short supply chain organized for the benefit of consumers mentioned in Article L. 611-8 of the Rural and Maritime Fishing Code.
