EU leaders split on plans for a European digital tax

Irving Hamilton
November 9, 2018

The initial plan was for the European Union 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 worldwide talks continue.

No more tax havens.

European sabre-rattling over digital taxes and the UK's decision to apply a DST by 2020 have already raised the hackles of USA officials, who warn that the events might prompt retaliatory action from Washington DC.

The plan is aimed at changing tax rules that have let some of the world's biggest companies pay unusually low rates of tax on their earnings.

But Ireland, which hosts the European headquarters of several United States tech giants, leads a small group of otherwise mostly Nordic countries that argue the tax will also punish European companies and stoke Washington's anger. The US is fuming that it would unfairly target America's internet industry, and German industry leaders have warned it will hurt their own businesses.

Even if the digital services tax (DST) directive is approved at an EC meeting in December, it would still take two years for it to become law.

Olaf Scholz, Germany's finance minister, explained that Germany is committed to the OECD effort, which will culminate in a report due summer 2020. Critics of the new tax also say that it could stifle innovation. The tax will only apply to companies that generate more than £500m a year in global revenues.

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France's Finance Minister Bruno Le Maire, who has always been the main supporter of the tax, accepted delaying its implementation to the end of 2020, a major concession.

"It is very hard to see an agreement on the digital tax because so many technical issues are not solved yet".

The Council of ministers said in a statement that while "progress has been achieved on a number of issues such as definitions, tax collection, and administrative cooperation, there are still differences between member states on several issues, including the precise scope of services which would be subject to the future tax".

"We need unbelievably rapid progress on the global level", German Finance Minister Olaf Scholz said on Monday.

The opponents of the tax could live with it because it isn't imminent, while supporters could claim they're putting the OECD under pressure to reach a global solution.

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. "It's our aim to get the US, China and India on board as well", he said.

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