EU Ministers Fail to Break Digital Tax Deadlock

42
SHARE
An activist wearing a mask depicting Facebook's CEO Mark Zuckerberg demonstrates during the European Union finance ministers meeting, outside the EU headquarters in Brussels
An activist wearing a mask depicting Facebook's CEO Mark Zuckerberg demonstrates during the European Union finance ministers meeting, outside the EU headquarters in Brussels, Belgium, December 4, 2018. REUTERS/Yves Herman
Advertisement

By Leigh Thomas
BRUSSELS (Reuters) 

European Union finance ministers failed to agree a tax on digital revenues on Tuesday, despite a last minute Franco-German plan to salvage the proposal by narrowing its focus to companies like Google and Facebook

The European Union’s executive arm proposed a 3 percent tax on big digital firms’ online revenues in March, alleging the companies funnelled profit through states with the lowest tax rates.

The tax requires the support of all 28 EU states, including small, low-tax countries like Ireland which have benefited by allowing multinationals to book profits there on digital sales to customers elsewhere in the European Union.

The setback is a blow to French President Emmanuel Macron, as his government had invested considerable political capital in the tax. It is also seen in Paris as a useful example of joint European action before EU parliament elections next year.

 

European Commissioner for Economic and Financial Affairs Pierre Moscovici receives the petition regarding the digital tax from the representative of the global activism group Avaaz, outside the EU headquarters in Brussels
European Commissioner for Economic and Financial Affairs Pierre Moscovici receives the petition regarding the digital tax from the representative of the global activism group Avaaz, outside the EU headquarters in Brussels, Belgium, December 4, 2018. REUTERS/Yves Herman

 

In the original European Commission proposal, the tax was intended to be a temporary “quick fix” until a broader solution could be found among OECD members.

But this was opposed by Ireland and some Nordic countries, leading French and German finance ministers to focus solely on online advertising revenues instead.

 

French Finance Minister Bruno Le Maire attends a session of the National Assembly in Paris
French Finance Minister Bruno Le Maire attends a session of the National Assembly in Paris, November 27, 2018. REUTERS/Gonzalo Fuentes

 

While this met with misgivings and outright opposition from at least four other ministers at a meeting in Brussels, they agreed to keep talking, said Austrian Finance Minister Hartwig Loeger, whose country holds the rotating EU presidency.

 

“PRINCIPLED CONCERNS”

A broader turnover tax on firms with significant digital revenues in Europe would have hit companies such as Apple and Amazon harder, but the Franco-German proposal would not cover data sales and online marketplaces.

“I continue to have strong principled concerns about this policy direction,” Irish Finance Minister Paschal Donohoe told his EU counterparts in a debate on the tax.

U.S. lawmaker Kevin Brady, chairman of the tax-writing Ways and Means Committee in the House of Representatives, welcomed the failure of the proposal, calling the tax a “revenue grab” aimed at an industry dominated by American firms.

 

Picture illustration of 3D-printed Facebook logo in front of EU logo
A 3D-printed Facebook logo is seen in front of the logo of the European Union in this picture illustration made in Zenica, Bosnia and Herzegovina on May 15, 2015. REUTERS/Dado Ruvic

 

“Rather than pursuing measures like this that would result in double taxation,” he said, “countries should continue working together through the OECD framework on the important global dialogue regarding the digital economy.”

Companies with big online advertising operations like Google and Facebook would be most affected by the Franco-German proposal as they make up the majority of the market in Europe.

Under this proposal, the tax would not come into force until January 2021, and only if no international solution has been found. Paris and Berlin proposed that it expire by 2025 in a move aimed at appeasing concerns that it may become permanent.

 

The Google app logo is seen on a smartphone in this illustration
The Google app logo is seen on a smartphone in this picture illustration taken September 15, 2017. REUTERS/Dado Ruvic/Illustration

 

The Austrian presidency has been trying to reach a deal on the tax by the end of the year, while the Franco-German proposal calls for a deal by March.

“Don’t expect us to solve the challenge of a generation in a couple weeks or months,” French Finance Minister Bruno Le Maire said, adding the Franco-German proposal could still yield a deal.

German Finance Minister Olaf Scholz said tax receipts generate by the proposed Franco-German tax would be small, noting a similar tax planned by Britain was expected to raise around 500 million pounds ($641 million).

($1 = 0.7806 pounds)

 

(Reporting by Leigh Thomas, editing by Ed Osmond, Alexander Smith and Leslie Adler)

Advertisements