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Macron: France will 'do away with' digital tax once global policy is created

French President Emmanuel Macron announced Aug. 26 at the G-7 summit that he will eliminate his country's digital tax once an international digital services policy is created.

"The day an international tax exists on digital services, France will do away with its national tax," Macron said through a translator at a news conference alongside Trump in Biarritz, France. "Everything that has already been paid under the French tax system, will be reimbursed."

The 3% tax covers online advertisements aimed at French users, e-commerce platforms and the sale of user data in France. It applies to companies with at least €750 million in worldwide revenue from those services and €25 million in France. Macron signed the tax into law July 24 as the first of many possible measures under consideration by European counties including the U.K., Spain and Italy.

Opponents to the tax say it unfairly targets American tech giants such as Amazon, Facebook Inc., and Alphabet Inc.'s Google unit and undermines international tax principles.

Meanwhile, the Organisation for Economic Cooperation and Development is working on a global policy agreement by 2020. Macron said France would repay the affected companies the difference between a French tax and a global policy once passed.

Macron said his goal is to find an agreement internationally by 2020 to revamp international tax systems within the framework of the OECD to combat harmful trade practices.

President Donald Trump did not directly address during the conference whether a compromise has been reached.

Macron's comments come one week after the Office of the U.S. Trade Representative collected testimony as part of an ongoing investigation initiated to determine whether the tax will unfairly burden American companies.

Opponents have feared that France's new tax will weaken momentum opposing similar legislation, affect a wide range of companies beyond internet businesses that use digital services aimed at French users and place an undue administrative burden on the firms.

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The affected companies will have to significantly "re-engineer" their internal business and financial reporting systems to ensure accuracy, said Jennifer McCloskey, vice president of policy for the Information Technology Industry Council, during the Aug. 19 United States Trade Representative's public hearing in Washington, D.C.

They will also need to include new filing and audit components on French accounts, McCloskey said.

"We estimate associated costs to be in the millions for those in scope," McCloskey said. "Further, there will be very high audit uncertainty, which will lead to additional disputes and subsequent costs."

The tax is expected to be retroactively applied to digital services revenue as of Jan. 1, 2019. Companies are expected to make the first tax payments in November and again in April 2020.

Many companies have never collected data to specifically calculate the amount of revenue derived from French users.

"They may not have necessarily preserved all the information required to comply with the taxes," Matthew Schruers, COO for the Computer & Communications Industry Association, said in an interview. Schruers' group lobbies for tech companies, including those opposed to the tax.

Alan Lee, Facebook's head of global tax policy, testified that the company may have the necessary data to calculate the tax, but more time and resources would be needed to capture and maintain it.

Amazon responded to the passage of the tax by announcing plans to raise seller fees in France by 3% starting Oct. 1. The company has more than 10,000 French-based small to medium-sized businesses that sell on Amazon's online stores.

Amazon said it expects many of these businesses to be forced to pass on the tax to consumers, resulting in higher prices.

Trump in July teased possible tariffs on France to retaliate against the tax but those could be on hold due to the announcement.

Any additional tariffs will come on top of the growing trade war between the U.S. and China. On Aug. 23, China announced plans to impose tariffs on $75 billion in U.S. imports. Also on Aug. 23, Trump announced plans to slap additional tariffs on a combined $550 billion worth of Chinese goods.

The French digital tax is designed to be reasonably straightforward. But experts say it is vague enough that it could be subject to interpretation, making it difficult for companies to implement.

That is particularly true when it comes to determining a user's location. Companies can track IP addresses to determine whether a user is in France or not, but locations can be masked by VPNs.

"I think setting up systems to actually track that at the least requires expense and at the most requires digging through some challenges about how to get accurate information," Jesse Eggert, principal, Washington National Tax at KPMG, said in an interview.

He also questioned the longevity of the tax, given that the OECD is working on a common approach to the tax challenges of digitization.

"Are we asking businesses to go through all of this expense for a tax that may not last?" he said.