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Daily Tax Report: International

Facebook Must ‘Reengineer’ to Comply With French Digital Tax

Aug. 12, 2019, 10:31 PM

Facebook Inc. must invest time and money to capture the data called for by France’s new digital services tax, the company’s global tax policy head said.

“While we may have the necessary data to calculate the tax, it would require additional time and resources to capture this data and maintain it for these new tax and audit procedures,” Alan Lee said in a written statement released Aug. 12 in response to the U.S. Trade Representative office’s investigation into the tax. “Without further guidance from the French authorities, we estimate additional tax, compliance, audit, engineering, and maintenance costs.”

France in July enacted a 3% tax on tech giants’ revenue from digital advertising, sale of user data, and intermediation platforms.

Lee’s statement reflects the testimony he will give at the Trade Representative’s Aug. 19 hearing into the French tax, part of a trade investigation into the measure. The U.S. is looking at retaliatory measures, including tariffs, in response to the French tax.

Facebook also faces a compliance burden because the tax applies retroactively from Jan. 1, 2019, Lee said. The measure calls for companies to calculate their 2019 tax liabilities based on sales from before the tax was enacted.

“This will impose a significant burden on Facebook, as there is little guidance on calculating this new type of tax, and our current systems would require a reengineering of our internal systems to capture this data in a way that fully complies with the law as written,” Lee wrote.

The retroactive nature of the tax creates difficulties with “the systems changes needed for the intensive user location tracking and data storage that compliance and audit-readiness requires,” Gary Sprague, a partner at Baker & McKenzie LLP in Palo Alto, Calif., said in a statement released Aug. 12. Sprague said he was speaking on behalf of a group including Airbnb Inc., Amazon.com Inc., Expedia Inc., Facebook Inc., Alphabet Inc.'s Google, Microsoft Corp., Salesforce.com Inc., Stripe, and Twitter Inc.

Google also said the tax’s retroactivity could make compliance a burden.

“It unreasonably applies retroactively to January 1, 2019, which does not allow companies to plan and requires the implementation of new systems to calculate the tax,” Nicholas Bramble, the company’s trade policy counsel, said in a statement to the USTR released Aug. 12. 

The three statements were among 15 submitted to the Trade Representative’s office as of Aug. 12.

To contact the reporter on this story: Isabel Gottlieb in Washington at igottlieb@bloombergtax.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; Karen Saunders at ksaunders@bloombergtax.com