EU deeply split on digital tax plans

Several Member States oppose the Commission's 3% levy proposal

Photo: EPA Austrian Finance Minister Hartwig Loeger (C) said his country would try to find a compromise on the issue by December.

An EU plan to tax big internet firms like Google and Facebook on their turnover heads to an initial collapse as last Tuesday several EU governments rejected it and announced national initiatives instead, news wires reported. Under a proposal from the Commission in March, EU states would charge a 3% levy on the digital revenues of large firms that are accused of averting tax by routing their profits to the bloc’s low-tax states.

The plan is aimed at changing tax rules that have let some of the world's biggest companies pay unusually low rates of corporate tax on their earnings. But it requires the support of all 28 Member States and is opposed by a number of them, including small, low-tax countries like Ireland that have benefited by allowing multinationals to book profits there on digital sales to customers elsewhere.

At a regular meeting of European finance ministers last Tuesday in Brussels, many openly voiced their concerns. The meeting was streamed over the internet, allowing their disputes to be aired publicly. According to Economy Commissioner Pierre Moscovici, “if we do nothing, the EU will be split up like a puzzle and our European businesses will be the first to suffer.”

Germany's Finance Minister Olaf Scholz said the Commission should revise its plan for a EU-wide tax on large digital companies and stressed the new levy should be applied only if there is no global deal by the summer of 2020. He also said that a revised proposal should reduce the scope of the tax and exclude the sale of data and the internet of things - sectors that if included could result in the taxation of German carmakers.

France's Finance Minister Bruno Le Maire, who has long been the main supporter of the tax, accepted delaying its implementation to the end of 2020. But he said the EU should still reach agreement on the issue by the end of this year, to avoid states applying their own national taxes, in moves he said would harm the EU single market.

Irish Finance Minister Paschal Donohoe, who has for long opposed the tax fearing it could reduce revenues in Ireland, said the new levy would set a negative precedent for Europe, as it would be imposed in states where consumers are located rather than where services are produced. “We are net exporters. What kind of reaction would we have if this model was imposed on us?” he told ministers.

Separately Spain and Britain have announced their own national plans to tax digital companies, and reiterated their intention to move ahead without waiting for an EU deal. The Italian finance minister Giovanni Tria also said Italy would also proceed alone if no EU agreement was reached by the end of the year.

Austria, which holds the rotating EU presidency, said it will make its last attempt for an agreement at a meeting of finance ministers in December, but that divisions now appeared to be so deep that chances for a deal had narrowed considerably. But Sweden remains sceptical, especially if the deal is not anchored in a global tax framework.

“It is very difficult to see an agreement on the digital tax because so many technical issues are not solved yet,” Danish Finance Minister Kristian Jensen said cited by Reuters. He added that the proposed EU tax was devised in a way that would hit mostly US companies and therefore it would attract US retaliation.

Currently, tech firms earn significant revenue in the EU, but pay far less tax than traditional firms. The Commission estimates traditional companies pay 23% tax on profits - compared to just 8 to 9% for internet firms, with some paying effectively none. Nations such as Ireland woo tech firms with extra-low tax rates. The new plan aims to present a unified front to these firms.

But EU tax proposals require unanimity among the 28 Member States to pass. Nations such as Ireland stand to lose out in such a deal. Others are staking their bets on an OECD solution, bringing in China, India and the US, but negotiations have been particularly slow. France hopes an EU solution would pressure OECD members to pick up the pace.

Meanwhile, Britain's information watchdog referred Facebook to the lead regulator under Europe's data regime to look at how the social network targets, monitors and shows adverts to its users. Britain's Information Commissioner had been investigating the use of data analytics to influence politics after consultancy Cambridge Analytica obtained the personal data of 87 million Facebook users from a researcher.

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