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Trump & Macron Reach Compromise Over France’s Digital Tax

France/US Digital Tax

Taxing the digital economy will be one of the topics to be discussed at #TLTaxCon19 in Barcelona this coming October. Make sure to join the discussion by grabbing your tickets HERE. Hope you can join us!

US President Donald Trump and his French counterpart Emmanuel Macron met this week at the G7 meeting being held in Biarritz, France, and reached an initial compromise on how to proceed with the taxation of US multinational tech giants.

During a final news briefing at the event, Macron reaffirmed France's "desire to change the rules that govern international trade and revamp them so no one is dealt with unfairly."

He said: "There's a lot of nervousness and misunderstanding. A lot of world players are asking about the French digital tax. In our economies we have an unfair situation where some players don't pay taxes. That leads to instability in the economic front. It's not fair."

Macron added, "We want an agreement internationally to combat harmful trade practices which are also harmful to the US economy."

Most importantly, he reiterated that, "when the international tax comes in, France will do away with its national tax."

Macron said: "When there's an international taxation model, we will remove the tax — and everything that has been paid will be deducted from this international tax. We have found an agreement that is good for all parties involved. It can solve a lot of really negative issues and improve the international system."

According to this compromise reached between the two administrations, France will go ahead with its digital tax but promised to eliminate it once the OECD develops its own global levy on multinational tech companies, one that is expected to come online some time in 2020.

Furthermore, Macron agreed to reimburse the difference to the tech giants affected if the OECD digital tax rate ends up being lower than that imposed by France.

As explained by TechCrunch, "if Facebook pays a lot of taxes in 2019 due to the French tax on tech giants and if they would have paid less under the OECD framework, France will pay back the difference."

Overall, as reported by CNN, the OECD's plan "seeks to address shortcomings in global taxation by resolving questions over when taxes ought to be paid and whether those taxes should be collected where the buyers or the sellers are located."

Additionally, this proposal wants to "ensure that multinational companies pay a minimum level of tax, thereby discouraging them from shifting profits to countries with lower levels of taxation."

President Trump & GAFA React to France’s Digital Tax

President Trump & GAFA React to France's Digital Tax

President Trump, however, did not confirm that a compromise had been reached regarding the taxation of tech companies.

When pressed by the media during a news briefing during the G7 meeting, Trump said, "I can confirm that the first lady loved your French wine. She loved your French wine. So thank you very much. That's fine."

Furthermore, earlier this month, Amazon was the first company to react to France's digital tax by announcing it would pass on its costs to the final consumer.

Peter Hiltz, who serves as director of international tax policy and planning for Amazon, said the French digital tax rule is harmful and specifically discriminates against US companies.

The digital tax, Hiltz said, "will negatively affect the hundreds of thousands of small and medium-size businesses that use Amazon's services to help reach customers in France."

Additionally, several of the large US tech companies testified before the Office of the US Trade Representative (USTR) as part of a 301 investigation launched to look closer at France's digital tax and its overall effects on the US.

In written testimony before the USTR, Nicholas Bramble, Google's trade policy counsel, criticized France's unilateral move to set up a digital tax.

"It is a sharp departure from long-established tax rules and uniquely targets a subset of businesses. French government officials have emphasized repeatedly that the DST is intended to target foreign technology companies," Bramble said.

Facebook also commented on the tax, stating that France's digital tax clashes with the work being done by the OECD.

"We continue to support multilateral approaches like that being undertaken at the OECD. We welcome USTR's approach to thoughtfully examine unilateral measures that discriminate against US companies and could stifle innovation," Facebook said in its statement.

American industry pundits welcomed the compromise reached between the US and France, but believe the digital tax still poses several problems for US firms.

Jesse Eggert, a principal for KPMG LLP in Washington, DC, said, "I think it's probably fair to say that while refunding some or all of the DST is a welcome development, there's still going to be a compliance burden," particularly in the short term.

Daniel Bunn, who's in charge of global projects for Tax Foundation, concurred, saying, "The challenge of this tax isn't necessarily just the payment. You're asking companies to figure out how to pay the tax, establish tax payments, go through compliance for however many years, then just get that money back or offset future corporate income tax payments."

"There's a huge cost to companies beyond the actual payment of the tax," Bunn concluded.

Stay tuned for the next chapter in the digital tax saga!