France, Germany Pull Back On Plans For Tax On US Digital Giants

Image Credit: European Parliament

Under a new compromise, the EU now aims to implement its 3 percent tax on large digital companies’ revenues by 2020 — and only if international bodies fail to reach a solution

The EU has all but abandoned its original plan for a 3 percent tax on the revenues of large overseas digital companies, in the face of opposition from Nordic countries and Ireland.

At a meeting of EU finance ministers in Brussels on Tuesday, governments including Sweden, Denmark and Ireland said they opposed the proposed EU-wide tax because it could harm their competitiveness.

Irish finance minister Paschal Donohoe said the levy would create a negative precedent by focusing on areas where consumers are located, rather than where services are produced.

“We are net exporters,” he said at the meeting, which was broadcast over the internet. “What kind of reaction would we have if this model was imposed on us?”

Image credit: European Parliament

Low tax bills

The tax has been championed by French president Emmanuel Macron as a way of appeasing voters’ indignation at the low tax bills of large US internet companies such as Amazon and Google, ahead of European Parliament elections next year.

The initial plan was for the EU to reach an agreement by the end of this year under which the 3 percent tax would be levied on about 180 large internet firms as a stopgap while longer-term international talks continue.

But such an agreement requires the unanimous support of all member states, and in the absence of that, France and Germany said they were new supporting a significantly less far-reaching plan.

Under the new proposal, the two countries are aiming to issue a declaration next month under which governments would promise to work on an EU digital tax if an international agreement on new tax rules isn’t reached by 2020.

The compromise would put pressure on the OECD to accelerate talks on an international level, with an EU initiative ready if those negotiations fail to advance.

The plan is similar to the UK’s recent proposal to put into place a 2 percent digital services tax in 2020 if no OECD solution materialises.

If the OECD doesn’t produce a solution in the alloted time, the idea is for the European text to be ready for adoption “immediately”, French finance minister Bruno Le Maire told the Financial Times.

Deal this year?

German finance minister Olaf Scholz told the meeting in Brussels that his country would support France’s plan for an EU tax “if, against our expectations, a broader consensus cannot be reached”.

Scholz had also called for a revision that would exclude activities that could be linked to carmakers.

At the meeting in Brussels, Le Maire said it was critical to reach an agreement by the end of this year in order to prevent individual EU states going ahead with their own national plans, something he argued would harm the EU’s single market.

Spain, the UK and Italy have all indicated they plan to go ahead with their own digital taxes if no EU plan is forthcoming.

Austria, which holds the EU presidency, said it would aim for an agreement at a meeting of finance ministers next month, but added that it was difficult to see a way to resolve the impasse between member states.

“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 told ministers, according to Reuters.