Internet economy

Signs of compromise in EU digital tax dispute

eu digital tax proposal
No more tax havens. Source: DPA

A compromise is taking shape in the fight over a planned digital tax, with European ministers discussing delaying its launch until 2021, Handelsblatt has learned. A solution would allow dropping the levy in exchange for a global agreement on how to tax the revenues of internet companies.

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. France and the EU Commission are pushing for it, while countries including Ireland, Denmark and Sweden are opposed. 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.

The digital tax is intended as a temporary fix for internet firms accused of avoiding taxes on earnings they generate in Europe by placing their headquarters in low-tax EU states. It would impose a 3 percent Europe-wide levy on sales by companies with a global revenue of at least €750 million ($855 million) and EU sales of €50 million. That would affect about 115 internet giants and raise up to €5 billion in tax revenues annually. The Organisation for Economic Cooperation and Development has been working on an overhaul of the international tax system for six years, but the EU is getting impatient.

For Berlin, a question of form

Germany has yet to take a side, at least officially. Finance Minister Olaf Scholz of the Social Democrats has doubts about the digital tax but is under intense pressure from his party to back it, not least to avoid a Franco-German rift. Austria, which currently holds the rotating EU presidency, also wants the tax so it can chalk up a policy win.

German finance ministry officials have repeatedly warned their boss that the tax would be difficult to implement, may hamper investment and, above all, could trigger US retaliation. Scholz has been at pains to make clear he’s not against a digital tax per se, declaring it’s just a question of what form it should take. He has proposed a compromise of a global minimum corporate tax combined with strict measures to prevent companies from hoarding profits offshore to avoid taxes.

But that would take years to come into force, and France’s finance minister, Bruno Le Maire, doesn’t want to wait that long. Le Maire says internet firms must be taxed now, and that the EU’s digital tax will pressure the OECD to reach a global agreement more quickly.

“We must develop a plan by December for what happens if we don’t reach an agreement on the international level on taxing digital companies,” Scholz said Monday after a meeting of European finance ministers.

Saving faces

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 proposed launch date of 2021, provided no OECD deal is reached by then, would be a “face-saving solution” for everyone, said one German government official.

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. And the EU could say it stuck to its deadline to agree on the matter by the end of the year, in time for the EU parliamentary election in May.

The OECD may also warm to the idea. OECD tax head Achim Pross told Handelsblatt that the key is to avoid an interim solution that obstructed a lasting global deal. “It’s our aim to get the US, China and India on board as well,” he said.

But it’s not a done deal yet. Chancellor Angela Merkel’s conservatives are skeptical, and Ireland, where many international firms are based due its low corporate tax rate, remains opposed. Financial concessions could help change Dublin’s mind, however, EU sources suggested.

Ruth Berschens, Martin Greive, Thomas Hanke, Andreas Kröner and Donata Riedel of Handelsblatt contributed to this report. To contact the authors: berschens@handelsblatt.comgreive@handelsblatt.comkroener@handelsblatt.comriedel@handelsblatt.com

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