French tax hike could hit triple-play providers

9 Sep 2010

Reuters writes that France’s Economy Ministry is preparing to submit proposals to the country’s president, Nicolas Sarkozy, concerning a plan to raise the value added tax (VAT) on telecom bundles to 19.6% which, if implemented would impact on operators that sell so-called ‘triple-play’ bundles of TV, broadband internet and telephony services. According to a person close to the Economic Minister Christine Lagarde, the move could generate ‘several hundred million euros’ for the state as part of the 2011 budget. Paris is under intense pressure from EU regulators to amend the way it taxes triple-play services. They are unhappy with the current regime of taxing half the bundle (i.e. the TV service) at a lower rate of 5.5% which allegedly contravenes EU rules on VAT. In March this year Brussels informed the French authorities that the system was problematic and requested an explanation on the thinking behind it. In light of this, the country is seemingly looking to harmonise its position by moving towards a VAT rate of 19.6% on the entire bundle. Not surprisingly, the telecoms operators have baulked at the plan, and warn of an inevitable hike in end-user tariffs and the threat of a slowdown in investment in new technologies, such as fibre broadband networks.