European Union states split over digital tax, fearing USA retaliation

Marco Green
November 9, 2018

The tech industry has pushed back against the tax, saying it would chill investment.

With the traditional French-German engine of European Union law making sputtering, Bruno Le Maire told a Brussels meeting of his fellow finance ministers that Paris now agreed with Berlin that the tax could be delayed until summer 2020 to give time for global guidelines to be finalised.

The digital tax, sometimes called the "Google tax" for the impact it would have on Google and cohorts Apple, Facebook and Amazon, is deeply controversial. "At the same time, we agree today that we will implement a revised Commission proposal on the taxation of digital services if, against our expectations, a broad worldwide consensus can not be reached by summer 2020", Scholtz said.

German Finance Minister Olaf Scholz also said the tax should not be applied until the summer of 2020, and only if no global deal was reached on the same issue.

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. A solution would allow dropping the levy in exchange for a global agreement on how to tax the revenues of internet companies. Traditional tax rules have failed to capture these companies' activities, fueling anger from voters disgruntled after years of austerity and meager wage growth. "Of course there will be a reaction from the US, [it's] not a good idea for Europe". The levy would apply on revenue from "targeted advertising" and "intermediation services", while the tax will be imposed on turnover, irrespective of profit or loss, and won't be connected to or "creditable". Critics of the new tax also say that it could stifle innovation. The 2pc tax, revealed in the latest United Kingdom budget, will target revenues earned in the United Kingdom by online players ranging from search engines to social networks. All national delegations agree that the tax would be repealed if the OECD or the Group of 20 nations reach a deal for a coordinated solution to tax tech companies, according to one of the documents circulated ahead of the meeting.

The option to introduce the tax in 2021 was discussed at an informal finance ministers' meeting in September and will be addressed again at a meeting of the EU's Economic and Financial Affairs Council on Tuesday, sources told Handelsblatt. The plan requires all 28 states to approve the measure, but a large number now oppose it, anxious about the technical complexity of the process and that the U.S., where most of the firms are headquartered, would retaliate with changes to its own tax structure.

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